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Tax Research Credit
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Qualifying
Research Tax Credits
Qualified
expenses must be technological and
designed for usefulness in developing new or improved business
components. Companies must provide certain documentation showing that
their
projects are not just part of the ongoing cost of doing business.
The Research Tax Credit can be a benefit for business at tax time. The
main expenses subject to the credit:
- Wages paid to employees performing
research for the company;
- The cost of materials and supplies used
in research;
- Sixty-five (65%) percent of the amount
paid to outside contractors for research;
- Seventy-five (75%) percent of the amount
paid to non-profit organizations for assistance with the research;
- The cost of specialized computers and
equipment hired for the research.
What
Research does not qualify for the Tax Credit?
Businesses cannot get the tax credit for:
- Research which is routine data collection
- Customary and
ordinary testing;
- Inspection for quality control;
- Research related to adapting
an existing business
component for a the needs of a particular customer.
How
much is the Tax Credit?
The basic credit is equal to 20 percent of the qualified expenses
exceeding the average research expenditure for the
previous four years, known as the "base amount." There is an
alternative three-tiered “incremental” credit
approach based on reduced credit rates and fixed-base percentages.
These rules are extremely complex and they demand thorough
documentation of the qualifying research expenses activities.
State Tax Credit
In addition to the federal Research Credit, many states offer similar
research tax incentives. The process to obtain the
tax benefits is complex so consult with Ronald J. Cappuccio,
J.D., LL.M.(Tax) at (856) 665-2121.
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| If you have a question., call Ronald J. Cappuccio, J.D.,
LL.M.(Tax) at (856)
665-2121 |
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