What is the Research and Development (R&D) Tax Credit?
The R&D Tax Credit (26 U.S. Code §41) is a federal benefit that provides companies dollar-for-dollar cash savings for performing activities related to the development, design, or improvement of products, processes, formulas, or software. This credit provides much needed cash to hire additional employees, increase R&D, expand facilities, and more. The credit was enacted in 1981 to stimulate innovation and encourage investment in development in the US. Since then, many states have also passed the R&D Tax Credit. As such, this benefit is available across a wide variety of industries. Some of the common industries that qualify include, but are not limited to:
Estimate Your Benefits Instantly
Use our calculators for an estimate of state and federal benefits or to determine if you can offset payroll tax using the R&D tax credit. It's easy to use and free. If at any time you have questions, contact us. We are here to help you realize your maximum tax benefit.
What are the Potential Benefits of the R&D Tax Credit?
There are several benefits to realizing the R&D tax credit. These benefits can include the following:
- Receive up to 12-16 cents of federal and state R&D tax credits for every qualified dollar
- Create a dollar-for-dollar reduction in your federal and state income tax liability
- Increase earnings-per-share
- Reduce your effective tax rate
- Improve cash flow
- Carry forward the credit up to 20 years
- Perform look back studies to recognize unclaimed credits for open tax years (generally 3 or 4 years)
- Utilize the federal R&D tax credit against payroll tax (applicable to certain startup companies)
Four-Part Test
Qualified research activities are defined by the four-part test outlined below
Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.
Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.
Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.
Experimentation
All of the activities must include a process of experimentation including testing, modeling, simulating, systematic trial and error.
Research and Development Tax Insights
![KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements](https://www.kbkg.com/wp-content/uploads/RD-Tax-Insight-1.jpg)
KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements
07/24/2024By Jonathan Tucker | Principal, Research & Development Tax Credits With the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, significant changes were made to the Internal Revenue Code (IRC), notably to IRC 174. Starting in the tax year 2022, businesses can no longer fully expense their research and experimental (R&E) costs … Read More
![KBKG Tax Insight: IRS Updates Form 6765 to Claim R&D Credit KBKG Tax Insight: IRS Updates Form 6765 to Claim R&D Credit](https://www.kbkg.com/wp-content/uploads/Tax-Insight-Blog-Header-1-1.jpg)
KBKG Tax Insight: IRS Updates Form 6765 to Claim R&D Credit
06/25/2024By Jonathan Tucker | Principal, Research & Development Tax Credits On June 21, 2024, the IRS released an updated draft form 6765 – Credit for Increasing Research Activities, the tax form taxpayers must file with their tax returns to claim the R&D tax credit. This revised draft provides much-needed relief for taxpayers by reducing the … Read More
![KBKG Tax Insight: IRS Eases Requirements for R&D Credit Refunds KBKG Tax Insight: IRS Eases Requirements for R&D Credit Refunds](https://www.kbkg.com/wp-content/uploads/Tax-Insight-IRS-Documents.jpg)
KBKG Tax Insight: IRS Eases Requirements for R&D Credit Refunds
06/20/2024By Jonathan Tucker | Principal, Research & Development Tax Credits The IRS issued new guidance around amending for R&D tax credit refunds postmarked as of June 18, 2024. This guidance reduces the documentation requirement to be submitted for amending by removing two previously required items. KBKG Insight: With just three documents needed to submit the … Read More
![KBKG Tax Insight: Tax Court Denies R&D Credits for Engineering Firm KBKG Tax Insight: Tax Court Denies R&D Credits for Engineering Firm](https://www.kbkg.com/wp-content/uploads/Tax-Insight-The-Eighth-Circuit_Updated.jpg)
KBKG Tax Insight: Tax Court Denies R&D Credits for Engineering Firm
05/13/2024By Emily Flemmer | Manager, Research & Development Tax Credits In the case of Meyer, Borgman & Johnson, Inc. v. Commissioner No. 23-1523 (8th Cir. May 6, 2024), the U.S. Court of Appeals for the Eighth Circuit upheld the Tax Court’s decision denying research tax credits to a structural engineering firm because the taxpayer’s research … Read More
![Tax Alert: DEA Proposal to Ease Restrictions on Marijuana Tax Alert: DEA Proposal to Ease Restrictions on Marijuana](https://www.kbkg.com/wp-content/uploads/DEA-Tax-Alert.jpg)
Tax Alert: DEA Proposal to Ease Restrictions on Marijuana
05/10/2024By Paul McVoy and Bill Taylor | Principals, Research & Development Tax Credits A recent proposal by the Drug Enforcement Agency (DEA) to reclassify marijuana from a Schedule I to a Schedule III drug represents a significant shift in the regulatory framework surrounding cannabis. This change could have profound effects on companies operating within the marijuana … Read More
![Simple, Swift, Secure: KBKG’s Dash.tax Transforms R&D Credits Up to $50k Simple, Swift, Secure: KBKG’s Dash.tax Transforms R&D Credits Up to $50k](https://www.kbkg.com/wp-content/uploads/Dash-Press-Release.jpg)
Simple, Swift, Secure: KBKG’s Dash.tax Transforms R&D Credits Up to $50k
04/29/2024PASADENA, Calif. – April 29, 2024 – KBKG, a premier provider of comprehensive specialty tax services and solutions, proudly announces the debut of Dash.tax, its latest R&D tax credit software solution tailored for CPAs and businesses. Designed for swift and precise outcomes, Dash empowers users to effortlessly generate customized Research & Development (R&D) tax credit … Read More
![KBKG Tax Insight: April Update, 174 Capitalization Fix & Bonus Depreciation, 2024 Tax Relief Act KBKG Tax Insight: April Update, 174 Capitalization Fix & Bonus Depreciation, 2024 Tax Relief Act](https://www.kbkg.com/wp-content/uploads/174-Update_Web-2.jpg)
KBKG Tax Insight: April Update, 174 Capitalization Fix & Bonus Depreciation, 2024 Tax Relief Act
04/24/2024KBKG Tax Insight: April Update, 174 Capitalization Fix & Bonus Depreciation, 2024 Tax Relief Act By Emily Flemmer | Manager, Research & Development Tax Credits Frustration mounts among advocates of a bipartisan tax agreement initially approved by the House in January but has since hit a roadblock in the Senate due to Republican resistance. This … Read More
![Arizona Introduces New Research & Development Calculation Method for Tax Year 2023 Arizona Introduces New Research & Development Calculation Method for Tax Year 2023](https://www.kbkg.com/wp-content/uploads/AZ-RD-Credit-Update-1.png)
Arizona Introduces New Research & Development Calculation Method for Tax Year 2023
04/22/2024KBKG Tax Alert: Arizona Introduces New Research & Development Calculation Method for Tax Year 2023 By Elise Rhee| Director, Research & Development Tax Credits Effective for the tax year ended 2023, Arizona has implemented a new calculation method, mirroring the federal Alternative Simplified Calculation (ASC) approach. Notably, if a taxpayer hasn’t incurred qualified research expenses … Read More
![Virginia Research and Development Expenses Tax Credits Amended Virginia Research and Development Expenses Tax Credits Amended](https://www.kbkg.com/wp-content/uploads/Virginia-RD.jpg)
Virginia Research and Development Expenses Tax Credits Amended
04/15/2024KBKG Tax Alert: Virginia Research and Development Expenses Tax Credits Amended By Ian Williams| Principal, R&D Tax Credits Effective July 2024, Virginia’s Governor Youngkin signed legislation that impacts Virginia’s major research and development expenses tax credit. The changes include a decreased major R&D expenses cap, a new credit calculation method, and an increased R&D expenses … Read More
![Michigan’s Senate Enacts R&D Tax Credit Michigan’s Senate Enacts R&D Tax Credit](https://www.kbkg.com/wp-content/uploads/Tax-Insight-Michigan-State-RD-Credit.png)
Michigan’s Senate Enacts R&D Tax Credit
03/25/2024KBKG Tax Insight: Michigan’s Senate Enacts R&D Tax Credit By Michael Maroney | Director, Research & Development Tax Credits On March 19, 2024, Michigan’s Senate passed legislation enacting an R&D credit, the first of its kind since the R&D credit expired over a decade ago. The Senate passed HB 5100, which the Democrat-led Michigan House … Read More