R&D Credit

Contrary to popular belief, you don't need to wear a lab coat or discover a new element to be eligible for a research and development (or R&D) tax credit. If your business is creating or improving a product, process, or software, you may qualify. For expenditures to qualify, they must be "incurred in connection with the taxpayer's trade or business" and must "represent research and development costs in the experimental or laboratory sense". According to the regulations, the "experimental or laboratory sense" is "for activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product." If you're a start-up making less than $5 million annually and are under 5 years old, R&D credits can be used to offset up to $250,000 of your payroll taxes per year. If you're an established small business but don't have taxable income this year, you can carry the credit forward for up to 20 years. R&D credits require a lot of documentation so be sure to track your expenses diligently. If you think some of your business activities might be eligible for an R&D credit, contact your CPA to find out more about this complex topic.