R&D Tax Credit - Qualifying Activities

One of the common misconceptions surrounding the R&D tax credit is that participants must wear lab coats and use test tubes in order to qualify for the credit. This could not be further from the truth. In reality, the definition of R&D for tax credit purposes is fairly broad. Companies are able to qualify activities beginning with the development of concepts and extend to the point where a product, process, formula, or other business component is ready to be commercially released. If a company is engaged in any of the activities below, looking into a potential R&D credit may be a fruitful exercise. Companies engaged in the following activities should consider looking into the R&D tax credit:

  • Developing or engineering a new or improved product, process, formula, or software
  • Evaluating the feasibility of a product, process, formula, or software
  • Developing engineering architecture
  • Developing experimental models & prototypes
  • Testing an experimental product, process, formula, or software
  • Beta testing
  • Improving processes or the manufacturability of a product
  • Technical design reviews
  • Participating in technical meetings
  • Documenting the results of research
  • Maintaining research equipment
  • Compiling research data
  • Fabricating experimental models
  • Experimenting with new technologies
  • Creating more efficient and environmentally friendly designs
  • CAD or 3D Modeling
  • Supervising technical personnel engaged in R&D

Qualifying Expenditures

Qualifying expenditures include:

  • Wages: For those directly working on, supervising, or supporting the development process
  • Supplies: Items used or consumed during the development process
  • Contract Research: Outside vendors brought in to assist in the development process

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