How to Determine Your Eligibility for R&D Tax Credit

There is a common misconception that only companies and enterprises engaged in manufacturing and processing, or healthcare and the health sciences, can benefit from research & development tax credits.

History has shown that companies from a variety of industries can take advantage of R&D tax credits as long as they have proven to have engaged in approved research and development activities and have incurred qualified research expenses (QRE).

While companies in the manufacturing and processing industry have traditionally been able to benefit more from tax credits on their research & development activities, more and more enterprises in different industries, such as oil and gas, healthcare, IT, and agriculture and farming have been able to claim tax credits in recent years.

Take, for instance, the agricultural and farming industry. If you have an enterprise which falls under this sector, you can apply for tax credit if you engage in research and development activities with an aim to make your business grow and improve its products and services. So how do you know if you qualify? A simple four-part test will tell you.

How to determine your eligibility for research & development tax credit

  1. If you have done or are doing research with an aim to create or develop a product, technique, process, invention, or formula that will improve reliability, cost, functionality, or performance, then you may qualify for R&D tax credit. For example: if you are in the midst of developing a more effective harvesting system for your crops by creating a new and improved machine, or if you are trying to enhance your field irrigation system, then this can be classified as research done to improve a process and technique.
  2. If you are engaged in research activities which have a technological nature, then you may also be eligible. This means that you are doing research which makes use of the hard sciences (mathematics, physics, biology, etc.) rather than the soft sciences, such as humanities or the social sciences.
  3. If your research activities are done in order to eliminate any technical uncertainties, then this also makes you eligible for R&D tax credit.
  4. If your research activities are done following a set experimentation process, with theories and testing, for instance, then this adds to your eligibility for tax credit.

Keep in mind, though, that your enterprise needs to pass these four criteria, and not just one or two.
Once you have determined that you pass all the requirements that constitute qualified research, then you can move on to the next step: calculating your credit.

It is also important to remember that R&D tax credit is different for each state. The details and requirements for a state like Texas, for example, are different from other states like California, which also has a robust farming and agricultural industry. You can determine your eligibility and what you can expect with R&D tax credit by consulting a research & development tax specialist.

With expert help, the entire process of determining, computing, and filing for research & development tax credit and incentives is made much simpler – and a lot more effective and hassle-free than before.

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