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Research & Experimentation (R&E) Tax Credit Calculation

The tax team at SobelCo works closely with our clients to ensure that they take fullest advantage of the appropriate tax strategies and leverage the specialty tax credits that are available based on their unique business situation.

With that in mind, it is important for business owners to understand the options available to them.   

Did you know that U.S. taxpayers claim nearly $10 billion in Research & Experimentation (R & E) credits (sometimes referred to as Research & Development ) each year?  In fact, many people erroneously assume that those credits are going only to the large companies that are revolutionizing the world. In fact, R&E tax credits are available for companies of all sizes, particularly because of new legislation enacted in December 2015.

What are R&E Tax Credits?

R&E Tax Credits are business credits provided by the Internal Revenue Service Tax Code for companies that incur R&E costs in the United States. In order to encourage economic growth in the manufacturing sector, the credit reduces corporate federal income taxes and possibly state taxes and provides additional cash flow for those companies that have demonstrated a commitment to creating or enhancing innovative new products or processes.

What this means is that C Corporations, S Corporations, Partnerships  and Schedule C taxpayers with taxable income that design, develop, or improve products, processes, techniques, formulas, inventions, or software, or invest resources to advance and improve existing products and processes may qualify for the R&E tax credit.

If you believe your company qualifies for R&E tax credits, we will conduct the testing necessary to determine your eligibility including:

  • Business component test
  • Section 174 test
  • Process of experimentation test
  • Discovering technological information test

You can be confident that the SobelCo tax professionals will apply either the Regular Method or the Alternative Simplified Credit Method, whichever is best suited for your situation.

We will help you determine which activities are included and which are excluded when calculating the R&E credit.

We will determine if your company has incurred expenses in the proper qualifying activities, such as wages paid, tangible supplies used, or contract research conducted to pursue qualified research. We will also consult with you to eliminate any activities that do not qualify for the R&E credit, such as foreign research, market and consumer research, advertising, research in the arts or humanities, training, recruiting or other personnel matters, accounting task or general and administrative (G&A) duties – to name a few. Further, we will assist in assuring that you have the proper documentation to substantiate your expenditures and support your application for the R&E credit.

R&E Tax Credit is Here to Stay!

After 35 years as a temporary tax credit, it comes as a great relief to many businesses that the R&E tax credit is now permanent — and improved. Further, a number of court cases, regulatory changes, and updates to guidance have clarified and expanded what activities and expenses are eligible for the credit.