Which Research Activities Qualify for the Qualified Small Business Tax Credits

Diane Glover

Jul 17, 2017

Which Research Activities Qualify?

If your small business engages in research activities, you may be eligible for research credits on your tax bill. A business must have engaged in “qualified” research activities to be eligible for the research credits. A “qualified” activities must meet the following four-factor test:

1. The purpose of the activity must be to create new (or improve existing) functionality, performance, reliability or quality of a product, process, technique, invention, formula or computer software that will be sold or used in your trade or business.

2. The intention of the activities for your new product or service must be to eliminate uncertainty.

3. There must be a process of experimentation where your process includes trial-and-error testing.

4. The process of experimentation must fundamentally rely on principles of physical or biological science, engineering or computer science.

Expenses incurred by your business that may qualify for research credits include:

wages for time spent engaging in supporting, supervising or performing qualified research
supplies consumed in the process of experimentation
65% of any contracted outside research expenses

If you think your business has activities that meet the four-factor test which qualifies you for research credits, contact Kirsch CPA Group at (513)858-6040. We will help you make the election for your business (or amend your business’s 2016 federal income tax return, if necessary) and help your business take advantage of research credit.