At the end of 2015, the extender deal was reached. With it, powerful business incentives like the research and development (R&D) tax credit were made permanent, meaning those involved in research and development activities no longer have to wait with bated breath like they did during the usual backslide of this tax law.

Along with the declaration of the R&D tax credit’s permanence came other provisions that extend the scope of what qualifies as an R&D business activity.
As you begin preparing to do your taxes for the past fiscal year, you may be wondering if your business qualifies for the R&D tax credit. The following questions and answers are here to help guide you on the tax credit’s high-level eligibility requirements:

Question #1: Is the nature of your business focused upon developing or improving a certain product, process, technique, formula, invention, or software?

Essentially, in terms of qualifying research and development activities, you must have a bona fide trade or business that uses resources to develop or improve a specific business component or product.

Question #2: During the course of your projects, do you encounter and try to solve issues that are technical in nature (i.e., those that are based in the hard sciences)?

The R&D tax credit is intended to capture expenses for activities that are based in the hard sciences, and not for any type of financial or business-based activities.

Question #3: Do you employ highly technical individuals to perform the work associated with the development or improvement of your products?

Those who qualify for the R&D tax credit typically have personnel with degrees and backgrounds that are technical in nature (engineering, physics, computer science, biological sciences, etc.).

Question #4: With regard to the technical issues referred to above, are there predictable, defined answers to these technical challenges, or does the activity focus on a point of technological uncertainty that must be determined?

When claiming research credits, you want to avoid including activities for efforts relating to routine maintenance type activities, where the answer is fairly certain at the outset of the project.

Question #5: Do you develop hypotheses and experiment to determine a solution to the technical challenges? Alternatively, is the process of solving the technical issue routine and clear at the outset of the project?

You must use a process of experimentation in an effort to solve the technical challenges faced in developing or improving a business component. In the event that the R&D activities are deemed routine or having a clear and determinable result requiring no experimentation, this is usually considered to be a non-qualified activity for the tax credit.

After reviewing this Q&A, you may be thinking your business activities do qualify for the R&D tax credit. That’s a great first step in the pursuit of this lucrative business incentive. However, the process of capturing the research credit is complex, requiring accurate documentation, reporting and filing.

That’s why it is recommended to connect with an R&D tax credit expert who is able to guide you throughout the process. In addition to guiding the process, an expert also has the experience to identify qualifying business activities you may not know about, so you maximize the dollar-for-dollar benefit of the research credit.

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