The federal R&D tax credit benefits medium and small companies in nearly every industry

The R&D Tax Credits can be useful tax-savings opportunities, but, unfortunately, they often come with popular misconceptions.

Most Frequently Asked
Questions about the R&D Tax Credits

Research and Development has been around since 1981 and after being extended 15 time was made permanent in 2015. The R&D was simplified to include many industries not formerly approved.

Research & Development is the act or process of creating something over a period of time. The application of new ideas to practical problems. It is a process that creates growth, progress, positive change.


Activities can be tested and failed to qualify. The taxpayer who is trying to develop or improve a business component’s functionality, performance, reliability, or quality by systematically evaluating the design. 

The intent of the credit is to encourage companies within the U.S. to keep technical talent within the country while simultaneously continuing to drive innovation. This keeps not only your company, but the country, competitive both domestically and internationally. 

Activities qualify if they meet each element of a “four-part test” and aren’t excluded. 
Four-part Test 

  1. Elimination of Uncertainty. Research undertaken to discover technological information useful in the development of a new or improved business component. Or discovery of new information to eliminate uncertainty.  
  2. Process of experimentation. To eliminate the uncertainty 
  3. Technological in nature. The success or failure of the evaluative process is determined by the certain principles not necessarily new to nature, but new to the company. 
  4. Qualified purpose.The purpose of the activity is to improve the functionality, performance, reliability, or quality of a product, process, software, technique, invention or formula.  

The U.S. Tax Code has been changed to make R&D credits more easily available to small and mid-size companies, and about 25% of all companies claiming the credit have assets under one million dollars. 

We go back 3 years on filed taxes to recover R&D expenses to be refunded from the paid taxes. This is a dollar-to-dollar refund for R&D. It can also reduce the effective tax rate. 

R&D is a specialize field based on the behaviors of a business. This evaluation is at the premises and many questions are asked.  

The R&D is not part of the standard accounting activities of the CPA and a different part of the tax code. Why would you go to a General Practice Doctor to be treated for Major Surgery. 

Can I claim it now? For how many years can I go back and claim? Normally, you can get unclaimed credit for open tax years, specifically the last 3-4 years. If your credit exceeds the amount you paid in income tax(es), you can carry-forward unused credit for up to 20 years. 

Today, the research and development (R&D) tax credit is vital to keeping the U.S. at the forefront of innovation. Read short Forbes article here.

Fortunately, the federal government, as well as many states, currently provides valuable economic incentives to alleviate some of the burden and reward companies for undertaking these inherently risky initiatives. These financial incentives are intended to foster innovation and technological advancement of U.S. companies, thereby creating and maintain jobs and increasing global competitiveness.

The federal R&D tax credit, also known as the Research and Experimentation (R&E) tax credit, was first introduced in 1981 as a two-year incentive and has remained part of the tax code ever since. Its purpose is to reward U.S. companies for increasing their investment in R&D in the current tax year. It is available to any business that attempts to develop new, improved, or technologically advanced products or trade processes. In addition to activities such as creating new products or trade processes, the credit may also be available to taxpayers that have improved upon the performance, functionality, reliability, or quality of existing products or trade processes.

Although many taxpayers have viewed this tax credit favorably, there were limitations on the applicability and utilization of the tax credit for certain taxpayers. On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act. This legislation retroactively renewed and made permanent a collection of expired tax provisions for both businesses and individuals and addressed some of the credit’s limitations with regard to certain small businesses and startup companies.