The R&D Tax Credit
The R&D Tax Credit was developed to encourage research and private investment in innovation in the US. In order to qualify for the credit, claimed research activities must satisfy four conditions:
Four Part Test
Section 174 Test
This test ensures that all expenditures are qualifying business expenses.
Discovering Tech. Information Test
This test ensures that the research undertaken is technical in nature and is undertaken for the purpose of discovering information to eliminate uncertainty concerning the development or improvement of a business component.
Business Component Test
This test ensures that the taxpayer must intend to apply the information being discovered to develop a new or improved business component of the taxpayer.
The Process of Experimentation Test
This test ensures that qualified research be research where all of the activities of which constitute elements of a process of experimentation. The process of experimentation is a process designed 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.
At Blue Ridge Business Advisors, we help business owners navigate the R&D Tax Credit landscape and ensure that all qualified research expenditure are identified.
