What Expenses can Qualify for the R&D Tax Credit?
Wages: Employees directly working on, supervising, or supporting new development or improvement of a qualified business component*.
Supplies: tangible items or raw materials used or consumed during development. For example, the ingredients used by a pharmaceutical company while developing a new drug formulation can be considered a supply expense.
Contract Research: Hiring an outside person or business in the U.S. to perform qualified research on behalf of the taxpayer. 65% of the amount paid to the non-employee can be considered a qualified contract research expense.
Cloud Hosting: If your company uses cloud computing services, you may be able to claim a portion of those costs as Research and Development (R&D) expenses. For example, the cost of Amazon Web Services (AWS) servers used for a “staging” environment can qualify, but not for a “production” environment.
These expenses must be incurred during qualified research activities inside the United States for them to count toward the R&D credit. For most companies, the R&D credit is 7-10% of their total qualified research expenses.
*A business component is defined as any product, process, computer software, technique, formula, or invention that is to be— (i) held for sale, lease, or license or (ii) used by the taxpayer in a trade or business of the taxpayer.
*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*
- Last Modified
- September 20, 2024
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