Is your company performing R&D activities? If your company views R&D as, for example, only people wearing lab coats and using test tubes, it might be missing out on potential tax savings.
The term “research and development” is broad and includes creating or improving a manufacturing process, developing or improving a product, developing computer software, etc. While not an exhaustive list, here are a few R&D activities that generally qualify for the federal tax credit:
Developing, modifying, designing, supporting, or supervising research activities for:
The eligibility & documentation process
While the federal R&D tax credit can be beneficial for a broad range of companies, the eligibility and documentation requirements are stringent and complex. Companies claiming the credit, should be prepared to perform a study that involves identifying, documenting, and supporting the eligible expenses generally associated with qualified R&D activities, including contract research, supplies, and internal wages.
The importance of having these R&D studies performed accurately needs to be a priority. In some instances, businesses could potentially face penalties imposed by the Internal Revenue Service (IRS) if they claim the federal credit but the activities and expenses are not eligible or otherwise properly identified and documented.
The eligibility and documentation requirements involved in producing an R&D study can be a significant undertaking. Because of the penalties for inaccurate filings, claiming the federal R&D tax credit can be costly if the eligible research activities and expenses are not properly qualified and documented. Yet, with access to wage and payroll information and with guidance from experienced tax professionals, your company can assemble the documentation needed to help claim and substantiate the federal R&D credit.
How ADP® and KPMG can help you
ADP and KPMG LLP (KPMG)—the U.S. tax, audit, and advisory firm— can provide a thorough R&D study and assemble the supporting documentation needed to help capture the federal R&D credits your company may be eligible to claim.
Because wage information is required to complete any assessment of R&D activity, ADP can help you make the identification and documentation of qualified R&D costs and activities more efficient and effective.
The over 400 tax partners and professionals in KPMG’s Research Credit Services practice, who include accountants, software engineers, and mechanical engineers, can then help you identify and document qualified research activities, the amount of the federal R&D tax credit for which your company may be eligible, and assist with any tax compliance related filings.
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