A Guide to Understanding the Research and Development Tax Credit
The R&D tax credit, which is officially known as the research and experimentation tax credit, is a general business tax credit that was made permanent in the United States of America in 2015. This credit is meant to increase industry around the county by offering businesses tax relief for performing specific forms of research and development. If you believe the R&D tax credit could be beneficial for the company you run, the remainder of this guide will teach you quite a bit about it.
It is important for you to understand that this particular tax credit requires businesses to meet a variety of criterion before they can take advantage of it. You will discover additional information about these next. The research and experimentation tax credit can be rather confusing. If you do not feel as though you fully understand this credit when you finish this guide, which is not unlikely, you should schedule an appointment with a certified public account or a tax preparer who often assists business owners.
The Four Major Criterion
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There are four primary criterion you must meet in order to receive the R&D tax credit in the United States of America. These are featured next.
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1. The research needs to have to do with creating or improving some business component that relates to your industry. If you intend to improve upon an already-existing component, you need to make sure your project will make it more functional, more reliable, or of a higher quality than it is now.
2. The company must intend to find information that will eliminate uncertainty surrounding the development or the improvement of the aforementioned business component. This basically means that the company isn’t allowed to guard top-secret documents or hold exclusive meetings about the project; rather, they must allow all documentation and information to be easily accessible to interested parties.
3. The company must have a detailed system in-place for performing its research. The government doesn’t, however, specify which system needs to be abided by. You could decide to follow every step of the scientific method to a T or you could opt to stick with a simple trial and error process.
4. The project needs to have a tech-based foundation. This means it needs to fall into one of the following categories; biological science, engineering science, or computer science.
Exclusions That Could Relate to Your Project
There are also some exclusions to the R&D tax credit that could prevent you from getting it even if you meet all of the above criterion. Some major exclusions are duplicating a preexisting business component, reverse engineering a component and claiming it for your own, or developing a component that will only be released internally within your firm.