I attended a luncheon about the Research and Development(R&D) Tax Credit hosted by Hiretech at the Houston Technology Center. I’d like to share what I learned with you, especially because technology has become a greater part of our lives. If you have ideas of how to improve or create new technology, then you might be eligible for this Tax Credit if you pursue your project.
A few differences worth noting between Grants and the R&D Tax Credit.
- If you’d like to take the R&D Tax Credit, it must be applied to something you have already started in the past year. Where a Grant would be applied for future projects.
- Success rates: Grants is 15-20%, R&D is near 100%.
Why such a big difference? Grants applications are judged by professors and the Tax Credit is based on IRS rules.
- Timeline to get your $$? Grants: 6-10 months after submission, R&D: 0-3 months after filing
- How much $$ can you even get? Grants: $225K for Phase I and $1.5M for Phase 2, R&D: 5-7% of qualifying R&D
So what qualifies for R&D?
New or improved business components
- Software (Internal or External
Must be technological in nature to be eligible for this Tax Credit. You do want to stay away from soft sciences such as polling/surveys.
What exactly can be claimed under the R&D Tax Credit?
- Wages, Partnership Earnings subject to Self-Employment Tax and bonuses paid to employees.
- Supplies, cost to fabricate prototypes, items consumed in the R&D process and tangible property used to conduct qualified research.
- 65% of domestic contract research, outside consultants, engineers and software developers.
The R&D Tax Credit has been around since 1981, but the difference now is the changes made to the rules. Since December 2015, companies no longer need to meet a minimum taxable income but instead meet the 12-point test. (shown in the image above)
So if there’s a project you’ve had in mind and you pass the 12-point test, you should definitely go for it!
Remember, Mayen Business Services is here to help you get your business started on the right track.