R&D Credit Research – Nezaj & Co.

R&D Tax Credit for Startups

Did you know that your business could qualify for a tax credit of up to $250,000? The federal startup R&D tax credit allows new businesses to reduce their payroll tax by a set percentage of their research and development (R&D) expenses, with a maximum reduction of $250,000. With such a large financial incentive, it pays to start thinking about the R&D credit well before tax time and from the earliest days of starting your business.

Who can apply for the Federal R&D tax credit?

Businesses from a broad range of industries can apply for the federal R&D tax credit, including engineering, manufacturing and software development companies. To apply, a business must fulfill two conditions:

It must have less than $5 million in gross receipts in the current tax year.
It must not have gross receipts from more than five years before the current tax year.

Which business expenses qualify for the R&D Tax Credit?

If your business is eligible for the credit, you can use the money spent on certain research and development expenses to offset the amount of payroll tax you pay. R&D tax credit qualified research expenses (QREs) include:

The cost of hardware and supplies used to build your product. This does not include capital items or general administrative supplies.
The cost of leasing computers used for R&D activities.
Fees you pay contractors to contribute to R&D projects in the United States.
Wages you pay employees to work on qualified research activity. Keep track of the time that employees from all departments (including founders and CEOs) spend on R&D activities, so you can include the relevant portion of their salary as an R&D expense.