The Research and Development tax credit is a federal tax incentive that rewards taxpayers for investing in U.S.-based research activities.
Businesses that can take advantage of the credit are those that uncover new, improved, or technologically advanced products, processes, principles, methodologies, or materials.
Your business may also be able to use the credit if you’ve invested time, money, and resources toward improving your products and processes.
How It Works
The R&D credit applies to expenses for Qualified Research Activities done in the U.S. It’s mostly a wage-based credit composed of the following Qualified Research Expenses:
- Internal wages paid to employees for qualified services, and staff members can include those performing the science as well as those directly supporting and supervising these individuals.
- Supplies used in the R&D process
- Contract research expenses, which is when someone other than the taxpayer’s employee performs a QRA on behalf of the taxpayer, regardless of the success of the research
- Basic research payments to qualified educational institutions and various scientific research organizations
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