All About Finance


How Your Activities Relate To Research Tax Credit

It is human nature to show appreciation for every good deed. As they say one good turn deserves another and this is the case with the relationship between the taxman and businesses. Countries develop and set trends by engaging in research and development projects. Stagnation in this area effectively freezes time in terms of improvements in technology and living standards. The research tax credit, officially known as the research and development tax credit, is a piece of legislation that came into existence in the year 1981. It came about as a mechanism to breathe life into US research activities that were facing decline.

Most businesses still hold on to the misconception that availed in the period running up to 2001 that the requirements to access this tax credit are unattainable. This has been despite the fact that it has been amended and clarified many times over to make it more discernible and accessible.

What Activities Qualify For Research Tax Credit?

There are a few questions that can best help you understand the criterion used in qualifying activities for this credit.

1. Is your work an improved or new process or product?
2. Is it technological in nature?
3. Was the process development or product design encountered with technical uncertainty?
4. Was this uncertainty resolved by means of an experiment?

These qualifying questions have the semblance of constricting the eligibility space but if applied correctly the effect is totally opposite. The secret is to determine your status is to know whether your company’s intellectual capital and efforts have been invested to come up with something new or changed something incrementally to a level where it can be considered to be new. For instance if you were to design and build a better lawnmower, it should address reliability, function, quality and performance concerns.

Activities such as research conducted after a product has already begun its commercial production, duplication of established processes and products, adaptation of established processes and products, efficiency surveys, management techniques or functions, testing and market research, promotions and advertising, data collection of a routine nature, quality control and inspection, and cost of acquiring an additional patent do not qualify for research tax credit.