In my first article, I have explained what an R&D credit is. Congress designed this credit to reward businesses that invest in research and development activities that create jobs and advance the economy. However, to take advantage of this credit, taxpayers must provide proper documentation that can defend and maintain their claims.

A well-designed R&D study should provide relevant information that can help an auditor determine if a taxpayer is eligible for the credit. To qualify for the R&D tax credit, the four-part test must be satisfied. These include permitted purpose, technological in nature, elimination of uncertainty, and process of experimentation. By meeting these criteria, businesses can claim the wages of individuals who performed the qualified activities, supplies used in the process of experimentation, and payments to contractors or consultants who provided qualified services.

It is important to identify the qualified research activities associated with each qualified business component before calculating the expenses to avoid costly audits that often result from “lack of nexus” and insufficient documentation. By doing this, businesses can ensure that their documentation meets the four-part test, and they don’t miss out on the chance to claim the R&D tax credit.

In summary, the R&D tax credit is a valuable tool that can help businesses thrive and innovate. It is essential to understand the requirements and documentation necessary to qualify for the credit. A well-constructed R&D study that meets the four-part test criterion can help businesses avoid being denied the tax credit and maximize their return on investment.

Please contact me to discuss how we can design an R&D study that meets the criteria and fits your budget.