Business “research and development” is more than white lab coats and test tubes. This lexicon may have been the mode in the 1980’s, but today what many businesses are doing to expand their product and service offerings often involves pushing keyboards and designing high search engine optimization rankings.
The Research and Development (R&D) Tax Credit has evolved also. Recent legislative changes have made it more available to smaller firms, tech-firms, start-ups and more relevant to today’s digital era. In the past, if you did not think you qualified for the R&D Tax Credit (federal or State), you may be missing substantial tax savings.
The very nature of what a smaller technical orientated businesses does, often makes it a great candidates for the R&D Tax Credit. The everyday work of software developers, programmers, data experts and other technicians is technical in nature and involves an iterative process of experimentation to arrive at a desired result. These traits are almost verbatim the requirements to qualify for the tax credit.
Examples of activities that could qualify for the credit, include:
- Developing or writing computer code to deliver website, applications or SaaS solutions to third party clients
- Designing databases used by outside firms that track, monitor or optimize large data sets
- Developing algorithms for improved performance of software, data or other informational needs (e.g. business intelligence)
Your business may qualify for a tax credit if you perform any of these or similar activities. It is worth checking with your tax professional to see if the recent changes to this credit can benefit you as well. These changes have now opened up this credit to businesses of all sizes, expanding the availability of this credit from the days of the white lab coat only to today’s digital age.
Todd Corbo is a Director in Lurie’s Specialty Tax Services group and Kevin Besikof is a partner in the Entrepreneurial Services group and also leads Lurie’s marketing services and agencies Go-To-Market team.