The R&D tax credit can usually be claimed if your business is involved in anything that requires an engineer. This tax credit encourages invention of new products but it also can be applied to companies who spend money to improve production, make things faster or make things cleaner. In other words, if you spend money on figuring out how to make an existing product better, that’s R&D and worth of the tax credit, in the eyes of the IRS.
Three Things to Know about the R&D Tax Credit
1.You can claim this credit even if your company doesn’t have a laboratory with test tubes. Did you hire an engineer to improve your software for managing your alarm systems that you sell? Well that expense can be claimed under the R&D tax credit. In this case you’re not even inventing anything, just making an existing product better. If you developed a product or improved it using an experimental process, it’s R&D.
2.Even if you don’t hire out for an engineer but instead use your own employees for the R&D, you can claim the R&D tax credit. Just make sure that you can prove that at least 80% of that employee’s time was spent on R&D. That will allow you to claim 100% of their time to claim the credit.
3.If you are a small or medium business, you don’t have to worry that
claiming the R&D tax credit will trigger an IRS audit. While all claims are subject to audit, usually it’s the big companies with bigger R&D tax credits that get scrutinized.
Feel free to contact the office if you feel this may apply to you.
Tags: R&D Credit
Written by: Doug Rodrigues