Wondering if You're Eligible for R&D Credits

If you're a business owner who wants to eliminate the uncertainty in developing a new product or improving an existing one, you're probably engaging in research and development. Unfortunately for them, many business owners don't realize that in some cases, R&D expenditures are tax-deductible. Or perhaps they think that some expenses are deductible when they're not.
The IRS notes that "R&D expenditures generally include all expenditures incident to the development or improvement of a product." The term "product" has a wide range in this context and can include:
•    Formula
•    Invention
•    Patent
•    Pilot Model
•    Process
•    Technique
•    Similar Property
Other examples of IRS-sanctioned R&D expenses include:
•    Obtaining a patent.
•    Attorney's fees that help perfect a patent application.
R&D expenses you cannot deduct include:
•    Quality control testing.
•    Advertising or promotions.
•    Consumer surveys.
•    Efficiency surveys.
•    Management studies.
•    Research in connection with literary or historical or similar projects.
•    The acquisition of another's patent, model, production or process.
You can deduct R&D expenses in one of three ways:
•    Current year deduction.
•    Amortization of deduction over a period of not less than 60 months.
•    If you choose to amortize, you can opt for the Optional Write-Off Method by deducting R&D expenses ratably over a 10-year period beginning with the tax year in which those expenses were incurred.
The IRS explains that you must charge to a capital account any R&D expenditures that you do not deduct currently, nor defer and amortize. You are allowed to claim the R&D credit against tax for certain qualified R&D expenditures, and combine the credit as one of the components of the general business credit. It also notes that the R&D credit is a nonrefundable tax credit.
Of course, rules are changing all the time, and there's a lot of fine print. Give us a call and we'll help you make sure you get everything coming to you, without falling afoul of IRS regulations.