Research and Development Credits (R&D)

The Research and Development Tax Credit (R&D) is a government-sponsored benefit. Redefined in December 2001 by the Bush administration in order to make it much easier for a company to qualify, the R&D Tax Credit provides cash incentives for companies conducting R&D in the U.S. The purpose of credit is to be an incentive for stimulating research and development in industries of all sizes, to encourage companies to work together and to transform the economic landscape in a positive way by providing an immediate source of cash for many small and mid-size companies while creating a significant reduction to current and future years' federal and state tax liabilities.

It is important to note that the credits are not designed to be used only by major corporations with complex and sophisticated research labs. Instead the intent is to provide tax credits for businesses of all sizes.

Any company that designs, develops or improves products, processes, techniques, formulas, inventions or software may be eligible. In fact, if a company has simply invested time, money and resources toward the advancement and improvement of its products and processes, it may qualify.

Do you qualify? Here is just a sample of activities that may qualify for R&D tax credits:

• Developing an innovative product that is new to the market
• Engineering and designing a new product
• Research aimed at discovering new knowledge
• Searching for ways to apply new research findings
• Designing product alternatives
• Evaluating product alternatives
• Significant modifications to the concept or design of a product
• Designing, constructing and testing preproduction prototypes and models
• Engineering activity to advance the product's design to the point of manufacture
• Systems processing modeling
• Engineering to evaluate new or improved specification/modifications in terms of performance, reliability, quality and durability
• Developing new production processes during prototyping and preproduction phases

Under recently issued government regulations, more industries now qualify for the R&D tax credit than ever before. In addition, the R&D tax credit regulations allow eligible taxpayers to “look back” to all open tax years (typically three years plus the current year) for potential R&D credits that were not previously claimed .