COST SEGREGATION, BUSINESS COMMERCIAL VALUATION
Chapter 1 R&D Tax Credit Qualification Test
Chapter 2 R&D Tax Credit Quantification
Chapter 3 R&D Tax Credit Calculation
Chapter 4 R&D Tax Credit Documentation
ALL of the following four criteria must be met in order to be qualified
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.
‡ Aiming to discover something based on hard sciences,
Physical or biological sciences
‡ No soft sciences, such as
Process of experimentation is undertaken for a qualified purpose if it relates to a new or improved function, performance, reliability or quality of the business component.
‡ New or Improved
Reliability or Quality
‡ Business Components - 6 Types
Research is undertaken for the purpose of discovering information if it is intended to eliminate uncertainty 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.
‡ One or More of the following three uncertain things:
Appropriateness of Final Design
In general. For purposes of section 41(d) and this section, a process of experimentation is a process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer's research activities.
Substantially All Rule
80% or more of project qualifies, capture 100%
(80% of Costs, Time, and Other reasonable measurement)
Shrink Back Rule
If Substantially All Rule failed, then apply Shrink Back Rule
(Shrink back to next smallest business component and apply Substantially All Rule. Keep applying until qualified or disqualified.)
Depending on your date of incorporation, initiation of qualified research and ability to collect contemporaneous documentation, you could be eligible for either Regular Credit or Alternative Simplified Credit.
QRE (Qualified Research Expenses) minus Base Amount
Excess multiplied by percentage = Credit
No excess = no credit
Base Amount = Base Percentage * Average Annual Gross Receipts (AAGR) or 50% of QREs, whichever is greater
50% QREs provides statutory maximum
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