Research and design tax credit

What Types of Activities Qualify?

In order for a project to qualify for the R&D tax credit, ALL FOUR of the following criteria must be met. This is known as the R&D “4-Part Test”:

1. Technological in Nature:

  • Information is technological in nature if the process of experimentation used to discover such information fundamentally relies on principles of the physical or biological sciences, engineering, or computer science. Qualified research does not include research in the social sciences (including economics, business management, and behavioral sciences), arts or humanities, or marketing research testing or development of promotions.

2. Permitted Purpose:

  • Research is considered conducted for a permitted purpose if the efforts relate to a new or improved function, performance, reliability or quality of a business component.

3. Technological Uncertainty:

  • Research is undertaken for the purpose of discovering information if it is intended to eliminate uncertainty which is present at the beginning of the project concerning the development or improvement of a business component. Uncertainty exists if the information available to the taxpayer does not establish the capability or method for developing or improving the business component, or the appropriate design of the business component.

4. Process of Experimentation:

  • In general, a process of experimentation is a process designed to evaluate one or more alternatives to achieve a result where the capability or method of achieving the result, or the appropriate design of the result, is uncertain at the beginning of the research activities.

Based on the 4-Part Test, if your company is involved in any of the following types of qualified activities, you may be eligible to claim the credit:

  • Develop new or improved products, production processes, formulas, or other innovations
  • Develop or test prototypes and models, including CAD modeling and testing
  • Perform destructive or non-destructive testing
  • Evaluate new materials, ingredients, chemicals, compounds or other components
  • Design tools, jigs, molds and dies
  • Perform research to discover new technology
  • Research automating processes via technology innovations
  • Develop new or improved computer software or systems
  • Develop new production processes during prototyping
  • Develop new patents, patent applications, or other intellectual-property-related work
  • Plus many more...