Question 1

What is the R&D (Research & Development) tax credit

Accepted Answer

The Research & Development Program was established to assist the growth and development of technology-oriented businesses. Many industries can qualify. R&D occurs when you are improving a product or process, not just developing a completely new product or idea. Please refer to the IRS Code Section 41 (https://www.irs.gov/pub/irs-regs/research_credit_basic_sec41.pdf ) for a detail of what qualifies.

Question 2

Does my company qualify for the R&D credit?

Accepted Answer

Below is a list of a few real-world applications. Please refer to the IRS Code Section 41 (https://www.irs.gov/pub/irs-regs/research_credit_basic_sec41.pdf ) for a detail of what qualifies.
 
1. Created a new product, made improvements or added new technology to an existing       product. 
2. Integrated various databases or application that don’t normally communicate
3. Machined and fabricated improved parts, dies and components

Question 3

How is the R&D credit calculated?

Accepted Answer

First you must establish your Qualified Research Expenses (QRE’s).

- Federal: Your accountant would include form 6765 on the company’s tax return. There are two different calculations in which they would choose the best option for you. Please refer to the IRS (https://www.irs.gov/pub/irs-pdf/i6765.pdf ) for the form and instructions.

- Pennsylvania: PA is a separate application that compares your current years’ expenses to the past four years expenses. Please refer to the Pennsylvania Department of Revenue (https://www.etides.state.pa.us/RDTaxCredit/Content/Documents/Instructions.pdf ) for the application and instructions.

Question 4

What are the expenses that can be included?

Accepted Answer

Wages, Supplies, and Contracted R&D o Please refer to the IRS Code Section 41 (https://www.irs.gov/pub/irs-regs/research_credit_basic_sec41.pdf ) for a detail of what qualifies.

Question 5

What are the benefits of applying for the R&D credit?

Accepted Answer

- Federal: You can use the credit against Corporate Net Income Tax, pass it through to qualifying shareholders or small businesses can used it against payroll taxes.
 
- Pennsylvania: You can use the credit against your PA liability, pass it through to any qualifying owners or sell the credit for cash!

Question 6

How does the R&D checklist process work?

Accepted Answer

The company would first complete a short multiple-choice questionnaire that coincides with the IRS Code Section 41. They would then complete three open ended questions explaining what their company does that is considered Qualified Research Expenses (QRE’s).

Question 7

What do I receive when I complete the product?

Accepted Answer

You will receive a R&D Checklist Packet of the information you provided breaking out each qualified expense so you can include it on your tax return and/or use it for the PA R&D application.

Frequently asked questions