Tax Tip Tuesdays Strategy No. 7: Fund Your invention with the R&D Tax Credit.
Are you an Inventor who has an idea that could change the world?
Perhaps your invention is the next invention to change the world! Your tax professional can help fund your dream of invention though the IRS research and development credit!
Do you have an invention that can change the world? Here’s a link to 5 inventions that changed the world. https://en.wikipedia.org/wiki/Inventions_That_Changed_the_World
Perhaps your invention is the next invention to change the world!
In 2015, the R & D Tax Credit (Sec 41) was made permanent. The R&D tax credit is intended to increase U.S. economic performance by encouraging research and development (R&D) and is intended to act as an economic stimulus that encourages investment within the United States. Declining research spending reduces economic growth, productivity gains, and competitiveness in the global marketplace.
You get the credit for “Qualified Research” that meet the “Four Part Test”. There are a number of requirements within each “Test” and the extensive regulations that supplement Section 41 R&D tests. Taxpayers generally rely on tax professionals like the experts at Brown CPA Group, Ltd. to assess whether research activities/projects meet the 4-part test.
Briefly, the four-part test is:
Four-Part Test
1. Permitted Purpose
The activity must result in a new or improved process, function, product, performance, reliability, quality, or significant reduction in cost. For example, automating a manual process is a common purpose for R&D.
2. Elimination of Uncertainty
The activities conducted are intended to eliminate uncertainty concerning the development or improvement of a product. For example, uncertainty relating to the maximum capability of a product, the method used to produce a product, or the best design of the product.
3. Technical in Nature
The activities must rely in large part on the principals of, engineering, physical or biological science, or computer science. This test is intended to limit products or activities that are based on literary, historical research or social sciences that generally do not qualify for the R&D Tax Credit.
4. Process of Experimentation
Activities must involve developing one or more theories or hypotheses for specific design decisions, testing and analyzing those hypotheses, and refining and discarding the hypotheses.
In conclusion, despite the often complex definitions and sometimes confusing limitations on heavy vehicles used for business, consulting an expert in these matters at Brown CPA Group, Ltd. can result in great tax planning opportunities that result in significant tax savings when structured appropriately.
To schedule an appointment to implement this strategy and others within the context of your unique tax situation, Contact Brown CPA Group, Ltd., at (847) 509-4100.
About the author: Ken Smith is an Enrolled Agent and Senior Staff Accountant with Brown CPA Group, Ltd. We know that success means different things to different people. While a business owner strives to maximize profits, increase efficiency and plan for succession; an individual client is more concerned with tax planning, wealth management, retirement and estate planning. At Brown CPA, we work with you on the total picture. Together, we succeed.
Contact your BCPA Tax Professional for help. We’d love to hear from you.
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