Let our experienced tax consultants identify and capture your maximum Federal and State Research & Development Tax Credits. First we determine whether the expenditures fall under the R&D Credit definitions. If the initial assessment shows potential savings, then we conduct a complete assessment. This process normally involves site visits and interviews with financial personnel, product developers, engineers, and IT staff. We have a 100% success rate, never having had a claim denied. This is because we not only calculate R&D credits, and conduct a thorough on-site R&D visit for every study. We also provide a bullet-proof, audit-defensible R&D Credit Study Report that captures the information connected to the various qualifying projects.

You've already invested in product and process improvements. Now let us help you pay for them! If your company has spent time and energy to improve your product then you likely have qualifying research under the Federal and/or a State Research and Experimentation Tax Credit.

State Research and Development Tax Credit.  In addition to the Federal R&D Credits that you may qualify for, many states also offer R&D credits which may offset state corporate income taxes. The states see these credits as an incentive to get businesses to locate in their borders. This provides jobs, which increases the tax revenue for the state, and creates economic development opportunities. The use of research and development credits by states results in a win-win situation for both the business and the state. If you are planning to relocate your business and/or your company's research and development activities to a particular state, then let us analyze which state will enable you to obtain the most credits for your industry.

The Federal Research and Development Tax Credit has been part of the Internal Revenue Code since 1981; however, a large number of companies have not taken advantage of this provision. In the past, the rules were very confusing. It was hard to determine who qualified, let alone which products or processes might qualify. While the rules are still complex, a company may be able to claim the credit providing that they are conducting research in the US, if they meet the four following criteria:

Four Part R&D Tax Credit Test:

1. Permitted Purpose: The activity must result in a new or improved process, function, product, performance, reliability, quality, or significant reduction in cost. Probably the most common type of activity overlooked by companies regarding these specific criteria involves significant improvements made to production-line operations. A very common example of this sort of improvement would be the updating of production-line capabilities by a manufacturer that ultimately improved efficiency, increased production capacity, and eventually yielded an overall reduction in costs. An example of this type of activity would be a company that manufactures heavy equipment, and relied upon a labor-intensive approach to production. If that company were to implement improvements in its manufacturing process, by way of automation or some other means that required investment in new equipment for the plant floor, then it's very possible that the costs associated with the implementation of the new production process could be eligible for the R&D tax credit.


2. Elimination of Uncertainty: Were the activities conducted and intended to eliminate uncertainty concerning the development or improvement of a product? This criterion specifically involves the identification of information that is uncertain at the onset of the project or activity. Such uncertainty can relate to the capability of the product, the method used to produce it, or the appropriate design of the product. The examples that we typically encounter when consulting with clients in this arena deal with issues such as: Will the new or improved manufacturing process integrate with our current system, on any level? Will our new product development meet the customer specifications? Will the potential benefits outweigh the potential risks? Or will the new or improved product or activity even work?


3. Technical in Nature: Does the research fundamentally rely on the principals of, engineering, physical or biological science, or computer science? This criterion is usually a fairly easy one to deal with. What it really does is eliminate the soft sciences from the formal definition of technology. In other words, products or activities that are predicated upon literary, historical or social sciences do not qualify for the R&D Tax Credit. In all of our experiences, this technology criterion has never been an issue when performing an R&D study for a manufacturing company or a pharmaceutical company.


4. Process of Experimentation: Does the activity involve developing one or more hypotheses for specific design decisions, testing and analyzing those hypotheses, and refining and discarding the hypotheses? A key factor regarding the Process of Experimentation hurdle was recently crystallized, when Treasury Regulations changed the wording to evaluation of one or more alternatives. Previous language defined the process as evaluation of more than one alternative.

Costs that Qualify for the Federal RD Credit. Generally, the credit will be 20% (13% net) of qualifying expenditures that exceed a base amount. So, as you can ascertain, the potential for R&D Credits to be large amounts is very reasonable. In fact, it is not uncommon for R&D Credits to be in excess of $100,000 per year. The base-amount calculation is probably one of the more challenging calculations of the entire project. You must be aware that if the company was conducting qualified research, and had qualified expenses and gross receipts from the period 1984 through 1988, then the more complicated calculation in developing a base period amount will result in significantly more R&D Credits than the short-cut technique, Alternative Simplified Research Credit Method. Conversely, if the company did not conduct qualified research until after 1989, then they are deemed to be a startup company, and must calculate their base period amount using the "Start-Up Method." But don't worry, we have the expertise to guide you as to which method is appropriate for your organization.

Employee wages and costs also qualify for the R&D Credit including W-2 wages for employees engaged in research activities. This number includes the wages of personnel directly involved in, supervising or supporting research and development efforts. If an individual spends 80% or more of their time working in the R&D area, then 100% of their wages are counted when calculating the R&D credit. If the percentage of time spent is less than 80%, then the actual percentage of time the individual spends in the R&D area is multiplied by his or her salary and allocated; and 65% of costs of contracted research, or 75% of contract research performed by a qualified research group such as a University or consortium.