Tax incentives such as the R&D tax credit have the potential to significantly increase your company’s savings when you capture all qualified research expenses. Every year, the research and development tax credit accounts for billions of dollars in federal and state benefits for companies that have qualified research expenditures. Therefore, work with a tax expert who can advise you on specific tax savings strategies when you are unsure of the documentation required, statutory deadlines and which research expenses qualify.
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 credits associated with these research costs. Let’s take a closer look at how your company can save on qualified research expenditures.
Employee Time
When you budget employee time to conduct research, you may include wages as a qualified research expenditure.
The tax code identifies three types of services that may be considered qualified research expenditures:
- Engaging in qualified research: This is the actual conduct of qualified research, such as a scientist running laboratory experiments.
- 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.
- 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 file for research and development tax credits, you may receive tax savings for supplies used or consumed in the conduct of qualified research. The tax code defines a supply as any tangible property other than land, improvements to land or property that is depreciable used or consumed in the conduct of research.
To qualify, supplies must be used for qualified research services conducted by one of your business’s employees or a non-employee conducting research on your company’s behalf.
Contracted Work
Your company may claim 65% of any qualified research expenditure incurred by outside contractors or consultants performing research on your behalf. This amount must be paid for qualified research or services that would be eligible for the R&D tax credit if performed by a company employee.
If your company incurs contract research expenses, you need to review the contract to make sure that your company retains substantial rights for the research being performed and that you are at risk for the payment of those research expenses.
While you may be able to claim savings by filing for R&D credits on your own, a tax expert is an invaluable resource who is able to guide you through the credit process and uncover all of the incentives for which your business may qualify. Instead of missing out on potential savings, speak with a knowledgeable tax consultant at CTI before you pursue the R&D tax credit.
Ready to discover tax savings strategies that help your business save? Download "What Can R&D Do For You" and learn the value of capturing R&D tax credits.
