Companies often overlook or incorrectly assume they do not qualify for the Research & Development Tax Credit. The mindset of the credit only applying to companies performing cutting-edge research in white lab coats is a costly miscalculation.

The R&D tax credit is applicable to all size companies in a variety of industries. Manufacturers, software developers, technology companies, contractors, engineering firms, and financial institutions may potential qualify. Succinctly, the R&D credit provides an incentive for all companies to invest in the development of new or improved technology.

The components above must meet 4 criteria:

1. Research conducted to discover information intended to be useful in the development of a new or improved business component (e.g., process, technique, formula, or software item)
2. Research must be technological in nature
3. Uncertainty regarding the development or improvement of a business component must exist at the beginning of the project
4. A process of experimentation must be used to eliminate the uncertainties

Any business entity may take the credit (sole proprietor, corporation, S corporation, LLC, partnership). The credit is claimed on Form 6765 and is filed with the company’s annual tax return. Qualifying small businesses also have the opportunity to offset payroll tax liabilities.

For companies having Pennsylvania R&D expenditures, a state credit may also be claimed. This credit is administered by the PA Dept. of Revenue, is a separate form filled out electronically by Sept. 15 each year. Companies who have zero tax liability and have all filing up to date may sell the credit for cash.