IRS’ definition of what qualifies for Tax Credits is very broad and applies to many industries from software development, manufacturing, wet-lab research, engineering, architecture, food & beverage and finance. Qualified investments for Qualified Research Expenses are required to pass the 4 Part Innovations Test. See Below:
Permitted Purpose: In simple terms, the purpose of the activity or project must be to create something new or even improve an existing product or service. The permitted purpose falls under a broad umbrella that includes improving functionality, performance, reliability, or quality for a business component.
Elimination of Uncertainty: The activities and project in question must attempt to eliminate uncertainty related to design, development method, or components capability.
Process of Experimentation: The given activity needs to follow at least a rough process of scientific experimentation. The activities must include a process of experimentation of the unknown (uncertainty) that would include testing, evaluating alternatives, or systematic trial and error.
Technological In Nature: The activities and process of experimentation must rely on hard sciences, such as biology, physics, chemistry, engineering or computer science.