The research and development (R&D) credit provides a tax incentive to taxpayers for performing qualified research in the US to develop new or improved business component.

Its aim is to encourage tax payers to increase their qualified R&D activities by making the R&D credit available for incremental qualified research expenditures in excess of a base amount.

USA Increase for Research Activities Program Information

Qualified Research

For the purposes of the R&D credit, qualified research is defined as research that satisfies all four parts of a four-part test:

  • Technological in nature: relying on the physical or biological sciences, computer science, or engineering;
  • Undertaken to eliminate uncertainty: relating to capability, methodology or product/process design;
  • Undertaken for a permitted purpose: relating to function, performance, reliability or quality, as opposed to a cosmetic or aesthetic purpose;
  • Consists of a process of experimentation: evaluating one or more alternatives.

R&D Expense Deductions:

The expenses that may be claimed as Qualified Research Expenditures (QRE) for the R&D credit are limited to:

  • (Taxable) wages: incurred in the performance, direct supervision or direct support of qualified research activities;
  • Supplies: non-depreciable personal property used or consumed in conducting the qualified research activities;
  • Contract research: for contract research conducted on behalf of the taxpayer in instances where the taxpayer is at financial risk, claimable at 65 percent (or 75 percent or 100 percent in certain situations).