What expenses qualify for the R&D Tax Credit?

Listed below are some of the most frequently asked questions our team receives about R&D tax credits

What expenses qualify for the R&D Tax Credit?

There are three main categories of expenses that can be claimed for the R&D Tax Credit:

  • Wages – Wages paid to employees who conduct qualified R&D activities, and the wages of the employees who directly supervise and support 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 third-party contractors, 1099 employees, or universities for technical activities conducted on the company’s behalf. These can include technical analysis or testing, design services, and other development activities for a qualified business component.

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 7-10% in federal credits in addition to state credits (percentage varies), where applicable.

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