R&D Tax Credit to Modernize Your Wealth Management Practice

The federal R&D tax credit is available to all businesses that apply innovation.  Below are examples of how businesses in some industries might qualify for the federal incentive. 

Manufacturing and Distribution 

In the sales and design phase, a qualifying activity may relate to developing a new product or improving an existing product.  When in production, creating specialized tools or changing engineering processes may be eligible. In the distribution phase, crafting new packaging materials or ways of packaging could qualify. 

Construction and Real Estate 

Examples of qualifying activities include finding ways to meet a new building code, reducing excessive noise or constructing a greener building. 

Natural Resources 

Improving exploration, mining and cleanup processes by experimenting with technology, equipment or procedures could be eligible.

Technology and Life Sciences 

Design, lab work, analysis and refinement of new products or experiments may qualify for the R&D tax credit. 

Transportation 

Experimenting with new safety equipment or more efficient engines, improving loading equipment or processes, enhancing dispatching or routing technology could potentially qualify.

💡A Note on Software Development:

Software development activities that enable a company to interact with a third party, such as a customer or vendor, are no longer subject to additional qualifying criteria.  As a result, businesses in all industries can claim the R&D tax credit for these activities more easily.

Typical ranges cited are 5–10 cents per dollar of qualified expenses (varies widely by myriad facets). 

According to the IRS in Section 41(b), R&D Tax Credit qualified expenses are the costs a company pays in association with conducting research activities that will fit within the stipulations of the R&D Tax Credit.

Qualified research expenses include:

• Employee compensation for performing certain qualified services
• Materials necessary for conducting qualified research and development
• Payments to secure the use of computers for the use of conducting research
• A percentage of the compensation paid to contractors for conducting qualified research activities

It’s important to note that, while they may qualify, these expenses may not be covered in full by the Research and Development Tax Credit.

Certain R&D Tax Credit qualified expenses, such as contract labor, may only return a percentage of their cost through the credit, though savings can still be exponential.

Nope.  In fact, the outcome doesn't need to be successful at all - such is the cost of research and testing, as some tests fail.  Credits may be carried forward, and some qualified small businesses can use the payroll tax offset election (subject to eligibility). 

You will need financial records showing the money you paid, business records demonstrating the activity’s purpose and a breakdown of qualified vs. non-qualified activities for expenses that relate to multiple purposes.  All required documentation is part of the standard RIA Workflows buildout.

Claims are made using Form 6765 with the business's income tax return.  Supporting documentation should be kept on file in case of audit.