The Research and Development Tax Credit Simplified

The Research and Development Tax Credit, more commonly known as the R&D Tax Credit has been around since the mid-1980s but has only recently become more well-known since it became a permanent part of the tax code in 2015. It is a credit given by the government to incentivize improvements and innovations to product(s) or process(es).

Unfortunately, less than 10% of eligible small and medium-sized businesses are taking advantage of this credit. This is largely due to two things, the fact that most business owners have never heard of it and are unaware that they qualify, and also that the majority of CPAs haven’t had the time or the manpower to specialize in such a specific, and just recently permanent, addition to the tax code.

There are only 4 main qualifications to receive the Research and Development Tax Credit:

1. Experimentation — Your business should engage in activities that do not have certain and concrete outcomes from the get-go. You should undergo a process of experimentation (modeling, modifying, prototyping, testing, etc.) to determine what equipment, materials, products, or processes produce the best results.
2. 2. Eliminate Uncertainty — Through your experiments, you should be able to establish what developments or improvements create the most optimal results beyond simple cosmetic or surface-level changes. An experiment does not have to be successful to qualify, so long as the results of the experiment seek to eliminate uncertainty and produce better outcomes.
3. 3. Technological in nature — The work you carry out must be based on principles of hard sciences (chemical or biological) or engineering
4. 4. Permitted purpose — You must intend to improve a product, process, or technique’s performance, quality or reliability

Together, we can determine how many Qualified Research Activities your business performs on a regular basis and how many Qualified Research Expenses you will be able to substantiate. There’s no need to get into the nitty gritty in this brief overview.

The team at Big Life Financial seeks to simplify and demystify the Research and Development Tax Credit for business owners so they can focus on doing what they do best! We much prefer to work hand-in-hand with your company’s CPA(s), though it is not a requirement that they be involved in this process. The work that Big Life Financial does seeks to supplement and bolster the hard work your CPA puts in year-round to make sure you, and your business, are well-prepared come tax time!

You can book an introductory call with the Big Life Financial team using this link: Book Now! to see if your business is a good fit to receive this credit!