R&D Tax Credits

Introduction

The R&D tax credit (IRS Section 41) rewards businesses innovating products, processes, or software. Even startups can claim $500k/year against payroll taxes.

Qualifying Activities

1. Four-Part Test:

   • Permitted purpose (new/improved function).

   • Technical uncertainty.

   • Process of experimentation.

   • Technological in nature.

2. Eligible Costs:

   • Wages (65% of qualifying R&D salaries).

   • Supplies (e.g., prototypes).

   • Contract research (75% of costs).

Claiming the Credit

• Form 6765: Calculate credit (20% of excess research expenses).

• Startups: Use Form 8974 for payroll tax offset.

Case Study: A SaaS company claimed $180k in credits for developing AI-driven CRM software.

FAQs:
Q: Can nonprofits claim R&D credits?
A: Yes—if activities meet IRS criteria.

Q: Are failed projects eligible?
A: Yes! The IRS rewards experimentation, not just success.