The Research and Development Tax Credit is also known as the “Credit for Increasing Research Activities”. As such, the more research expenses a company incurs year over year, the greater the tax credit will be. For all research costs in a given year, a company can expect anywhere from 6-20% in federal credits in addition to state credits, if applicable.
- Wages – Wages paid to employees who conduct qualified R&D activities, as well as those employees who are directly supervising and supporting the research.
- Supplies – Supplies and raw materials used or consumed in the R&D process, including prototyping and testing of a new or improved product, process, formulation, or patentable business component. This also includes expenses related to rental of cloud computing assets used in software development.
- Contract Research – Payments made to a 3rd-party contractor, 1099 employee, or university for technical activities conducted on behalf of the taxpayer for technical analysis or testing, design services, and other development activities for a qualified business component.