Research + Development Tax Credit

Malin Bergquist helps clients reduce their tax liability by taking advantage of research and development credits offered by the IRS.

Recent IRS rulings that have relaxed taxpayer requirements to take advantage of the Research Tax Credit. Because of this change, significant tax credits may apply to companies who previously did not qualify. Furthermore, many states offer similar Research Tax Credit incentives.

The Research Tax Credit is a dollar-for-dollar tax credit against taxes owed or taxes paid. Companies conducting any of the following activities may qualify for the Research Tax Credit:

• New or Innovative Products
• Design Engineering Staff
• Patent Development
• PhD Research
• Prototype Work
• Unique Process(es)
• Qualification Testing
• Software Development
• Improvement of Existing Products
• Environmental Design

Who can benefit from the U.S. research tax credit and other state tax incentives?

Companies that develop new or improved products or processes, or make significant investments in the development of internal-use software, may be able to benefit from the research and development incentives. Companies in the following industries are likely candidates:

• Manufacturing
• Telecommunications
• Biotechnology
• Software Development
• Food Processing
• Construction

The Research Tax Credit is not limited to these industries. Any company performing qualified research activities can qualify.

How does the Research Tax Credit work?

The Federal Government provides an income tax credit based on a percentage of the company’s qualified research spending above a base amount. Qualified research expenditures consist of the wages and salaries of employees engaged in qualified research, the cost of materials and supplies used in this research, leased computer time, and payments for qualified research done under contract by other organizations.

How can Malin Bergquist help?

Through our team of dedicated individuals, Malin, Bergquist & Company, LLP can help you secure the Federal and state tax laws dealing with Research Tax Credits are highly complex. Securing these tax benefits requires companies to thoroughly document the nature of their qualifying research activities and to quantify professionals that can help companies get full value from the Research Tax Credits for which they are entitled.

Here is a brief example of how the Research Tax Credit benefited company XYZ.

Company XYZ designs and builds various parts used in commercial aviation. It has been designing and manufacturing since the mid 1970’s. Company XYZ’s gross income is approximately $12 million annually. Due to the nature of this business, Company XYZ faces severe competition and needs to constantly improve the design of products offered. There is a great deal of engineering time needed to bring the product to fruition. Under this scenario Company XYZ qualified for an annual credit that reduced taxes by $150,000.