09 Feb R&D Tax Credit: Do Your Business Activities Qualify?
Your business’s growth often depends on ongoing research and development—for product improvements, new products or services, correction of any issues with products, and so on. This type of research is essential to many companies, and it comes at an expense. But too few small-business owners know that the expenses associated with R&D can often be deducted on your business taxes.
If you are performing research and development activities for your business, please be sure to inform your CPA of this when you meet with us for your Provo tax preparation meeting.
What Types of R&D Qualify?
Not every R&D project within your business is going to qualify for the credit. Qualified research projects include R&D on products intended for sale, as well as any research performed on products or processes to make your business more efficient. In essence, any R&D you perform to improve your existing products, create new products for sale, or improve internal processes may qualify for the deduction.
The R&D tax credit generally does not apply when:
- Research is conducted after commercial production has started.
- Research is performed to adapt a product to a specific customer’s needs.
- Duplicating an existing process or product.
- Performing surveys or studies.
- Researching certain internal-use computer software.
- Performing research outside the United States or one of its territories.
- Research conducted falls under the social sciences, humanities, or arts.
There are exceptions to many of these points, and there may be other circumstances that disqualify your research expenses from applying to the R&D credit. That’s why it is vital that you provide all information regarding your research and development activities to your CPA, so that he or she can better advise you on whether or not you qualify for this tax credit.
If you have any questions regarding your R&D expenses, we strongly recommend that you schedule a Provo tax preparation meeting with one of our CPAs so that we can take a closer look at your unique situation.