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Research Tax Credit

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According the IRS Techniques Guide, in order for an activity to qualify for the research credit, the taxpayer must show that it meets all the requirements as described in section 41(d). Under section 41(d), the term "qualified research" means research:

  1. With respect to which expenditures may be treated as expenses under section 174, (also known as the section 174 test);
  2. Which is undertaken for the purpose of discovering information which is technological in nature, (also known as the discovering technological information test);
  3. The application of which is intended to be useful in the development of a new or improved business component of the taxpayer (also known as the business component test); and
  4. Substantially all of the activities of which constitutes elements of a process of experimentation for a qualified purpose (also known as the process of experimentation test)

The research credit generally is not allowed for the following types of activities.

  • Research conducted after the beginning of commercial production.
  • Research adapting an existing product or process to a particular
    customer's need.
  • Duplication of an existing product or process.
  • Surveys or studies.
  • Research relating to certain internaluse computer software.
  • Research conducted outside the United States, Puerto Rico, or a U.S.
  • Research in the social sciences, arts, or humanities.
  • Research funded by another person (or governmental entity).


Research and Development - Manufacturing Tax Tips

The expenditures of research and development ("R&D") are generally capital expenses. However, you can choose to deduct these expenditures as current business expenses.

You may use one of the two following methods of accounting for R&D expenditures:

  • You may deduct your R&D expenditures in the tax year, in which you paid or incurred,
  • You may amortize such expenditures over a period of not less than 60 months

You must charge to a capital account any R&D expenditures that you do not deduct currently, nor defer and amortize.

You may claim the R&D credit against tax for certain qualified R&D expenditures, and combine the credit as one of the components of the general business credit. The R&D credit is a nonrefundable tax credit.

For detail information about R&D expenditures and credits, please set up a time with us to meet (click here for free initial consultation).