Take Advantage of the Corporation Research Credit

When it comes to tax incentives, many companies don't take advantage of all the credits and benefits that are available to them. One of the credits that often goes overlooked is the Credit for Increasing Research Activities (R&D Tax Credit). This particular credit requires filing Form 6765 along with your tax return.

According to the IRS, there were 15,873 corporations that claimed the credit in 2012. That was an increase of 8.2%. Those claimants had credits totaling $10,483 in millions of dollars. The monetary increase was 17.3%. These figures have increased greatly since 1990, when only 8,699 businesses claimed $1,547 in tens of thousands of dollars.

As the figures have increased, it goes to show that more companies are becoming aware of the availability of this particular credit and how they qualify for it.

The History of the Credit

In order to be eligible to take this credit, you are required to have qualified research expenditures. The next question you probably have is, "What are classified as qualified research expenditures?" While many documents refer to qualified research as a development effort designed to yield innovation within a specific scientific or technological field, there have been multiple revisions to this law since it’s enactment in 1981. The revisions have made for a broader perspective and eligibility.

Am I Eligible to Take This Credit?

In general, you can determine whether or not you are eligible for this credit by checking to see that it comprises the four distinct elements that indicate it is indeed qualified research.

The Four Distinct Elements

• The research has to be designed to improve performance or functionality or improve the quality and reliability of the business component in question.
• The second step is to eliminate any uncertainty. When you take on this research, you must expect it to dispel any doubts or uncertainty surrounding the business component's improvements and development issues related to the particular business component being considered.
• The experimentation process needs to involve evaluation of at least one alternative with the capability of achieving the result, but is uncertain prior to starting the experimentation.
• The research and experimentation process must rely on technological principles of engineering or one of the sciences.

If you are thinking about claiming the R&D tax credit, a tax consultant like our team at Acena Consulting can help you determine if your project has adhered to these four elements. Odds are that if you do conduct research in order to improve your business you can probably claim it on your tax return.

Download "A Guide to Proper R&D Credit Documentation for Small Business" below: