R&D TAX CREDITS
What are R&D Tax Credits?
Research and Development (R&D) tax credit is a tax incentive designed for companies engaged in developing products that are lighter, faster, more durable, reliable, precise, and cost-effective. This tax incentive is available to a wide range of industries, including retail, financial services, and automotive businesses. Interested in finding out if your company qualifies? Schedule a call with Realm Advisors today.
Is my company eligible?
Research and Development (R&D) tax credits are designed to incentivize innovation across a broad spectrum of industries. Virtually any company that invests in developing new products, processes, or technologies, or enhances existing ones, may qualify for R&D tax credits, provided their activities meet the specific criteria set out by the tax authority in their country.
Software Development
Biotechnology
Civil Engineering
Aerospace
Agriculture
Medical Devices
Hardware Engineeing
Mechanical Engineering
Manufacturing
Chemicals
Energy
Textiles
Pharmaceuticals
Electrical Engineering
Automotive
Food and Beverage
Telecommunications
Environmental Technologies
What expenses are eligible?
Qualifying expenses for Research and Development (R&D) tax credits typically fall into several categories, designed to encompass the broad range of costs that businesses might incur during their R&D efforts. While specifics can vary by country, the common types of qualifying expenses under most R&D tax credit regimes include:
Wages
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Direct Wages - Salaries and wages paid to employees directly engaged in R&D activities. This includes those who are conducting experiments, designing prototypes, developing software, etc.
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Support Staff - Wages for personnel who provide direct support to R&D activities can also qualify. This might include data collection, maintenance of equipment used in R&D, and administrative support directly associated with R&D.
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Supervisory Staff: Salaries of personnel overseeing the R&D projects.
Supplies
Costs of supplies that are used and consumed during the R&D process. This includes materials used in prototypes, testing materials, and any other tangible property not capitalized or included in inventory.
Contract Research Expenses
Payments made to third parties for conducting part of the R&D activities on behalf of your business. Typically, a percentage of these expenses qualifies for the credit, depending on local regulations. In the U.S., for instance, 65% of payments to qualified contractors are eligible.
Leasing Costs
Costs related to leasing computers and other equipment used directly in R&D activities. However, the lease terms and specific usage of the equipment can impact eligibility.
Software
The cost of software used directly in R&D activities may qualify if the software is integral to the R&D process.
Utilities
Utilities that power R&D operations, such as electricity for running equipment used in R&D labs.
Is my activity eligible?
The qualifiers for Research and Development (R&D) tax credits can vary by country, but generally, they are based on specific criteria that aim to encourage businesses to invest in innovative activities. In the United States, under IRS guidelines, the activities must meet the following four-part test to qualify for federal R&D tax credits:
1
Technological in nature
The research must fundamentally rely on principles of physical or biological sciences, engineering, or computer science. This means that research in non-technical fields like humanities or social sciences typically does not qualify.
2
Permitted Purpose
The activity must aim to create a new or improved product, process, software, technique, formula, or invention that results in increased performance, function, reliability, or quality.
3
Elimination of Uncertainty
The research must be conducted to eliminate uncertainty about the development or improvement of a product or process. This includes uncertainty regarding the capability, method, or the appropriate design of a product or process.
4
Process of Experimentation
The R&D effort must involve a process of experimentation. This means there must be a systematic process intended to evaluate one or more alternatives to achieve a result. This often involves testing, modeling, simulating, prototyping, or other methods of analysis.