Six Things You Need to Know Before Claiming the R&D Tax Credit

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Posted by Randy Eickhoff on Aug 28, 2019 1:41:31 PM

Like most tax incentive programs, the research and development tax credit can, at least initially, seem confusing to business owners − and rightfully so. The innovation tax credit is extensive and complex, with countless requirements and lengthy legislation to navigate through, making it essential to partner with a qualified tax specialist to optimize program benefits and overall return on investment.

Knowing R&D Tax Credit Basics Can Help You Best Manage Eligible Expenses

Yes, you should always collaborate with an R&D tax credit specialist to confirm eligibility and best track your qualifying research activities. However, having a general understanding of the R&D tax credit basics can help streamline the claim process as well as help you recognize some of the operations and expenses you should be tracking. Some frequently asked questions about the research and development incentive program include:

Is There a Limit on the R&D Tax Credit? 
Most business owners don't know that there's no maximum amount that can be claimed with the R&D tax credit. Typically, the only limitation that may occur is if you failed to use up your credit before the end of the 20-year carryforward period.

What Happens If I Don't Pay an Income Tax?
The research and development tax credit is nonrefundable. If you claim income for a specific year, the R&D credit can reduce or eliminate your tax liability. Excess credits cannot be refunded but would be carried forward to be used in a future year.

What Do I Need to Know About Alternative Minimum Tax?
For large or publicly-traded companies, the R&D tax credit can't be used against Alternative Minimum Tax (AMT) liability. However, much like payroll taxes, there is a specific program exception that enables some small businesses to leverage the innovation tax credit against AMT.

I Missed Claiming the R&D Tax Credit in the Past − Now What?
Maybe you didn't know your business was eligible, or perhaps you simply didn't realize that the innovation tax credit existed. Whatever the reason behind not filing for the credit in previous years, it's probably not too late to go back and amend your income tax return to reflect the credit. Typically, businesses have up to three years to make the change.

How Do I Know if an Expense Qualifies for the R&D Tax Credit?
Qualified research activities generally fall under three specific categories: employee wages, purchased materials, and contracted services. However, to determine if any individual expense can be included in the credit calculation, it must be directly related to the qualified research activity. In order to determine if an activity qualifies, it must pass a four-part test that proves:

  • Elimination of uncertainty within the activity
  • Process of experimentation
  • Technological in nature
  • Qualified purpose

Put simply: activities aimed at developing or improving your business that require the use of hard sciences may qualify for the credit.

How Do I Claim the Innovation Tax Credit?
A business looking to claim the R&D tax credit must file IRS Form 6765 with their income tax return. However, beyond filling out the proper form, a corporate entity must also develop extensive documentation supporting their claim.

Still Have Questions About the R&D Tax Credit?
Acena Consulting's team of R&D tax credit specialists can help. Contact us today to learn more about our process and how we help businesses in a wide range of industries increase cash flow opportunities with this generous program.


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Randy Eickhoff

Randy Eickhoff

Acena Consulting President Randy Eickhoff, licensed CPA, has partnered with more than 200 companies during more than 20 years of experience securing tax credits and other government incentives. His corporate partners range from multinational technology firms to smaller, privately held manufacturing, sports, and technology enterprises.