Budget For R&D Incentive Qualified Research Expenditures And Save

Written by Darren Labrie, CPA. Updated Jul 22, 2015.

ThinkstockPhotos-200290177-001Tax incentives such as the R&D tax credit have the potential to significantly increase your company’s savings when you capture all qualified expenses. Tax experts may advise you on specific tax savings strategies when you are unsure of the documentation required, deadlines and which expenses qualify.  If your business conducts research on a scientific model of experimentation, it is likely you are eligible to pursue savings through the R&D tax credit.

As you plan out your budget for expenses such as employee wages, research supplies and contract work, keep in mind that you may receive a reduction in tax liability for these costs. Learn more about how you are able to save on qualified research expenditures.

Employee Time

When you budget employee time to conduct research, you may submit wages as a qualified research expenditure. This expenditure includes all taxable wages as reported on your employees’ W-2 forms, such as bonuses and stock options. However, you may not submit for amounts that are not subject to withholding, even if these amounts paid for research services.

The IRS identifies three types of services that may be considered qualified research expenditures:

  1. Engaging in qualified research: This is the actual conduct of qualified research, such as a scientist running laboratory experiments.
  2. Directly supervising qualified research: This is the immediate supervision of qualified research, such as a scientist who supervises experiments but may not conduct the experiments him or herself.
  3. Directly supporting qualified research: An example of direct support may include time spent by a machinist for machining a part of a scientific experimental model.

Supplies

When you submit for R&D tax credits, you receive tax savings for supplies used in the conduct of qualified research. The IRS defines a supply as any tangible property other than land, improvements to land or property that is depreciable.

Supplies must be used for qualified research services conducted by one of your business’s employees or a person acting in the capacity of an employee.

Contracted Work

Your company may claim 65% of any qualified research expenditure incurred through business with an individual other than an employee. This amount must be paid for qualified research or services that would be eligible for the R&D tax credit as an employee’s wages.

If your contract research expense is paid in advance, it should be used towards your tax credit at the time the qualified research is conducted. Prepaid research expenses are not eligible until the services are performed.

As you pursue the R&D tax credit, it is beneficial to ensure your business is receiving the maximum tax savings. While you may be able to claim savings by submitting for the credit on your own, a tax expert is a valuable resource who is able to guide you through the credit process and help you reduce your tax liability further.

Instead of missing out on potential savings, speak with a knowledgeable tax consultant before you pursue the R&D tax credit. The tax experts at CTI are experienced in helping businesses like yours successfully claim tax credits and other benefits.

Ready to discover other tax savings strategies that help your business save? Learn how to effectively capture location-based tax credits.

Your Comprehensive Guide To Location-Based Tax Incentives

Topics: R&D Tax Credit

Darren Labrie, CPA

Written by Darren Labrie, CPA

Darren brings more than 20 years of experience in tax credits and business incentives. In his current role, he focuses on the overall operations of the practice and ensuring the highest level of service to clients.