Federal R&D Tax Credit

Small business? You may qualify to offset taxes to up to $250,000  per year. You may also qualify to  gain up to 10% of your R&D spend through the IRS. 

State R&D Tax Credit

Companies have the potential to recoup as much as 12% of their expenses  incurred during R&D activities, allowing them to offset different tax obligations.

The Four-Part Test
for R&D Tax Credits

Qualifying for R&D tax credits involves a stringent four-part test set by the IRS. This test ensures that your activities align with the IRS definition of research and development. Here’s a brief overview.

Permitted Purpose

This part verifies if the activity is intended to create new or improve existing business components (products, processes, software, techniques, inventions, or formulas). The goal should be to increase performance, functionality, reliability, or quality.

Elimination of Uncertainty

The activity must aim to eliminate uncertainty concerning the capability or method for developing or improving a product or process, or its appropriate design.

Process of Experimentation

The activity should involve a systematic process of testing various alternatives to achieve results. This can include simulations, modeling, or trial and error.

Technological in Nature

The process of experimentation must rely on the principles of hard sciences like physics, chemistry, biology, computer science, or engineering.

Ever wonder which expenses qualify
for R&D tax credits?

If your company is engaged in research and development (R&D), you may be eligible for substantial tax credits to offset your expenses. Here are four categories of expenses that generally qualify for R&D tax credits:


The R&D tax credit often covers salaries, wages, or other compensation for employees who are directly engaged in research activities. This may include their time spent on developing new products, improving existing products, or even supervising these activities.


Any supplies used in the R&D process that are not subject to depreciation may qualify for the credit. These could be raw materials used for building prototypes or other consumable items needed for testing and development.

Contract Research Expenses

If you contract outside parties to perform research and development on your company’s behalf, up to 65% of those expenses may qualify for the credit. Be aware that the work must still meet the IRS’s four-part test to qualify for the credit.

Rental or Lease Costs of Computers

If you are paying to use cloud-based platforms or leasing servers for direct use in R&D, these costs might be eligible. Similarly, the cost of renting or leasing other equipment necessary for your research may also qualify.

Documentation Required
for R&D Tax Credits

Proper documentation is essential for claiming Research and Development (R&D) tax credits. Here are four vital sources:

Project Records

Maintain documents describing the uncertainties and solutions of your project. Meeting minutes, project plans, and trial iterations serve as good examples.

Time-Tracking Records

Keep track of the time employees spend on R&D work. Timesheets and work logs are key in establishing wage claims for the credit.

Financial Records

Financial documents should detail your R&D costs. Include general ledger expense details, project expense reports, and payroll records.

Technical Documents

Preserve technical files like chart notes, design drawings, treatment diagrams, flow charts, and prototype results. They provide evidence of technological advancements.

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