Our nyc cpa and self-employed tax experts can help you determine your eligibility for the R&D tax credit. The R&D tax credit incentivizes certain research activities by reducing a company’s liabilities for spending money on that research. The credit is equal to a certain percentage of a business’ qualified research expense (QRE) in excess of a base amount.
Who is Eligible for the R&D Tax Credit?
- Start Ups (less than 5 years in business)
- Businesses with less than 5M in gross revenue
- Business owners must file form 6765 with their income tax return
R&D tax credit eligibility largely depends on whether the work you are conducting meets the criteria established by the IRS in its four-part test:
- Elimination of Uncertainty: You must demonstrate that you’ve attempted to eliminate uncertainty about the development or improvement of a product or process. In other words, something that has been changed solely for aesthetic purposes would not qualify.
- Process of Experimentation: You must demonstrate – through modeling, simulation, systematic trial and error or other methods — that you’ve evaluated alternatives for achieving the desired result.
- Technological in Nature(The Discovering Technological Information Test): The process of experimentation must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
- Qualified Purpose (The Business Component Test): The purpose of the research must be to create a new or improved product or process, resulting in increased performance, function, reliability or quality.
Starting in 2016, qualified small businesses had the option to elect to claim up to $250,000 for research activities as a payroll tax credit in the form of a refund.
If you have questions about how the R&D tax credit may affect self-employed business owners or the requirements necessary to take advantage of the credit, please contact our NYC CPA firm for guidance.