Companies can often claim numerous tax credits to reduce liability and keep money in the business. Many overlook R&D tax credits. These credits allow companies to claim research and development costs as they create new products and processes. The following will help you determine whether you qualify for this credit.
Determining Eligibility
The first step is determining whether your company is eligible for R&D tax credits. You must meet four criteria. Your research and development must be for a permitted purpose, such as developing new or improving existing products, software, or processes. They must also be technological and involve a testing process and uncertainty.
What Tax Can You Offset?
R&D tax credits can reduce liability for several tax types. You may offset income tax if your company is in a taxable position. If your annual gross receipts over the past three years are $50 million or less, you may qualify to offset the Alternative Minimum tax. Small businesses can also deduct up to $250,000 annually from the employer portion of the Social Security taxes.
Keep Appropriate Documentation
The most critical element of filing R&D tax credits is maintaining proper documentation. The IRS requires specific documentation to avoid an audit. You will need:
- Timesheets
- Prototypes
- Meeting Minutes
- Testing Records
- Invoices and Receipts
- Project Notes
- Detailed Contractor Agreements
- And More
A tax professional will advise you of which documentation you should have and ensure you have everything necessary to qualify for the credits before filing.
If you want to claim R&D tax credits for your business, visit the Business Name website to consult with a tax professional.
