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R&D Tax Credit
Federal & State tax savings for companies developing
products, processes, software, and more
Highlights
- Comprehensive Documentation that stands up to IRS scrutiny
- Simple Fixed Fee Structure
- Subject Matter Experts work directly with you and your tax professionals to quantify and substantiate R&D Tax Credits
- Expert Team includes Engineers, Tax Attorneys, CPAs, IRS Enrolled Agents, LEED APs
- $800 million + in Federal and State R&D Tax Credits
- Thousands of R&D studies completed
R&D Tax Credit Overview
Since its enactment in 1981, the R&D (formally, the Research & Experimentation) Tax Credit has been one of the most significant resources used by companies, in a variety of industries, to maximize cash flow.
The Protecting Americans from Tax Hikes (PATH) Act of 2015 has made this a permanent tax credit and expanded the program to include benefits for pre-revenue startup companies.
Initially designed to promote domestic innovation and R&D investment, the credit has evolved constantly during its lifetime. According to advocacy groups, the large majority (over 65%), of eligible companies overlook or fail to take full advantage of this tax savings opportunity.
The Research and Development (R&D) Tax Credit is one of the most substantial incentives under current U.S. tax law because, unlike a standard deduction, it is a dollar-for-dollar credit against your tax liability. Depending on your Company’s qualified research expenses, the credit can include eligible wages.
In addition to the Federal incentive, this tax credit is available in over 30 states.
Qualifying for the R&D Tax Credit
The common misconception about the Research and Development (R&D) Tax Credit is that it is solely for traditional white lab-coat activities. A number of tax court cases and legislation have broadened the industries and companies that qualify for the credit.
Common R&D eligible activities include:
- Pre-production design & engineering of a new product or improved existing product
- Production process development or production improvements
- Prototyping
- Work related to patented items
- Experimenting or testing new concepts, formulations, materials, tools, and procedures
- Software development
- General systematic trial and error experimentation
The essential criteria for Qualified Research Activities are summarized in the following Four Part Test:
1
Permitted Purpose
- The taxpayer must intend to apply the information being discovered to develop a new or improved business component of the taxpayer.
- A business component is any product, process, computer software, technique, formula, or invention, which is to be held for sale, lease, or used in a trade or business of the taxpayer.
2
Elimination of Uncertainty
- Activities are intended to discover information that would eliminate uncertainty concerning the development or improvement of a product.
- Uncertainty exists if the information available to the taxpayer does not establish the capability or method for developing or improving the product or the appropriate design of the product/process/technique/etc.
3
Technical in Nature
- The process of experimentation must fundamentally rely on principles of sciences such as engineering, physics, chemistry, biology, computer science.
- There is no “discovery” requirement, meaning that research activities don’t have to be new to the world, just new to your Company.
4
Process of Experimentation
- A process to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer’s research activities.
Patent Safe Harbor
Under the Patent Safe Harbor (26 C.F.R. Section 41-4(a)(3)(iii)), the issuance of a U.S. patent is considered “conclusive evidence” of three out of the four tests for credit eligibility. The existence of a patent or patent filing demonstrates to the IRS that the R&D activities are novel and non-obvious. If your company has patented or pending patent inventions, you likely have R&D Tax Credits available.
How to Claim the R&D Credit
- The R&D Tax Credit is available for all open tax returns, which usually includes up to 3 previous tax years and the current tax year.
- The credit is filed on the IRS Form 6765, Credit for Increasing Research Activities for the year in which the qualified expenses were paid or incurred.
- In the case of insufficient tax liability, companies may have the option to carry the credit forward for up to 20 years.
Section 174 Amortization
Section 174 of the Internal Revenue Code defines the treatment of Research & Experimental expenditures and the mechanism in which companies can deduct or amortize Research & Experimental expenditures. Allowable expenditures under Section 174 include rent, equipment rental, utilities, travel, foreign research, etc. incurred for Research & Experimental Purposes. Our firm can combine an R&D Tax Credit study with a Section 174 Amortization study to help reduce your tax liability while remaining compliant with 174 guidelines.
Our Value-Added Deliverables
- Complimentary R&D Credit Estimate
- On-site Data Collection
- Simple, Fixed Fee Structure
- All necessary tax forms and guidance for filing the tax credit
- Comprehensive Study to substantiate the tax credits and eligible activities
- IRS Audit Support
Our team provides unparalleled expertise in order to substantiate the maximum R&D credit for your company and ensure its defense.
We perform complimentary assessments of your innovative activities to demonstrate the potential credits, present and past.
Our streamlined, turnkey process explores the fundamental R&D activities of your business on a project by project basis, which will optimize your savings with minimal time investment from your employees.
Our focus on the quantitative and qualitative aspects of your R&D will improve your company’s internal procedures, resulting in simpler, stronger R&D claims in the future.
R&D Tax Credit Insights
R&D Tax Credit Frequently Asked Questions
Answers to common questions about the R&D Tax Credit such as qualifying expenses and activities.
R&D Credit Eligible Industries
The R&D Tax Credit is available to companies in almost every industry – it is not limited to just white lab coat activities. Many companies fail to claim R&D Tax Credits for their qualifying activities because of this misconception.
Featured R&D Credit Publications
Explore our publications and articles on how to leverage the R&D Tax Credit in a variety of business sectors.
Wondering if Your Company Qualifies?
Discover your tax savings with a complimentary R&D Tax Credit assessment from our team of experts.
No two cases are the same, which is why we take an individualized approach.
Speak With Our Tax Experts
Charles R. Goulding
President
Charles R. Goulding is an Attorney/CPA, President and founder of Energy Tax Savers/R&D Tax Savers, two divisions of a national tax consulting firm. Previously, he was a Managing Director at Cooper Industries Inc. (now Eaton) in Houston, Texas. Before joining Cooper, Mr. Goulding was a vice president of Dover Corporation, an eight billion dollar sales NYSE diversified industrial manufacturer. At both companies, Mr. Goulding created and administered company-wide R&D Tax Credit programs. These programs encompassed both domestic and international business operations and have helped generate over $600 million in tax savings for their respective firms. Mr. Goulding has been at the forefront of R&D Tax Credit work since the credit’s inception in 1981.
Mr. Goulding has a law degree from Brooklyn Law School (Juris Doctor) and an MBA from Adelphi University. Mr. Goulding also participated in Pace University’s Doctor of Business Administration Program. His undergraduate degree is from the State University of New York at Stony Brook where he was a double major in Political Science and Economics. He spent his junior year abroad at the University of Copenhagen, Denmark.
Mr. Goulding is a former President of the New York Chapter of the Tax Executives Institute and also participated in Pace University’s Doctor of Business Administration Program. He has served as the co-chairman of the Taxation of Mergers and Acquisition conferences in Chicago, Houston, New York City, San Francisco and Paris, France. He recently chaired New York’s Solar Investment Conference.
He has authored over 800 articles for numerous tax publications including International Business, International Tax Journal, Euromoney, Taxation for Accountants, The Practical Accountant, The CPA Journal, and Corporate Business Taxation Monthly.
Mr. Goulding successfully litigated the Dover Corporation case in U.S. Tax Court (the first check the box case) and the Pulsar International case on reasonable compensation. He is also the Mayor of the Village of Oyster Bay Cove, New York