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In December 2003, new IRS regulations were finalized which eased qualification requirements, making the credit friendlier to taxpayers. The changes: (i) made it significantly easier for a wider range of companies to qualify activities for the credit., and
(ii) increased flexibility in meeting certain recordkeeping requirements. Many companies tend to think of the R&E tax credit as biased towards high-tech, pharmaceutical, or biotech companies. Actually, many of your routine business activities may qualify for the credit. Activities in the areas of manufacturing, engineering, information technology, or quality assurance often qualify but are overlooked for the credit. What business activities qualify for the credit? According to the tax code, there are three ‘tests’ for qualification: - Discovery of Information — Activities intended to develop or improve a product or a manufacturing process. .
- Technological in Nature — Activities rely on scientific principles.
- Process of Experimentation — Evaluation of one or more alternatives.
TCS Consulting will help you identify activities that meet these tests. ‘Real World’ projects that qualify: - Manufacture products.
- New Product Development.
- Cost reduction/optimization.
- Prototype Development.
- New equipment—process streamlining.
- Develop/Improve processes or products.
- Develop software, automate/streamline internal processes.
- Improve reliability or quality or process or product.
- Cost reduction initiatives.
- Develops prototypes, jigs, fixtures, molds, and dies.
- Continuous Improvement projects.
- Attempt to use new materials.
- Obtain patents.
- Hire outside consultants to do any of these things.
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Do You Qualify?