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Science and technology have been the driving force of mankind for thousands of years, motivating us to learn more, discover hidden secrets and invent new things. Research and development is one of the most important reasons why industries have managed to stay for centuries, updating their objectives, coming out with new products and improving existing ones. Research and development has to be supported and motivated and that is the reason why federal and state governments offer tax benefits like R&D tax credit; and Texas R&D credit is the one offered by the Texas state government to industries and manufacturers who invest a great amount of time and money towards their R&D. Although, only a few companies in Texas manage to take full benefits of Texas R&D credit while most of them blatantly deny to claim thinking they are not eligible for it and a few who are willing to, but totally lost and confused over the whole incentive idea. This situation persists due to a lack of understanding about R&D credit and many myths that have surrounded the same for years. A lot of questions are asked and a lot of queries made about Texas R&D credit and here is a list of the most frequently asked questions to understand this tax benefit better. What is R&D Credit? R&D tax credit, introduced by the government of US in 1981 is a type of tax credit offered to R&D companies to encourage their research and development practices which can be used as an offset to pay off their tax liabilities and cover their R&D expenses. Who are eligible for the Texas R&D Credit? This is the tricky question which most companies don’t understand and fail to claim the tax benefits thinking they are not eligible for it. Research and development is essentially any activity, project or experiment that an enterprise carries out to create something entirely new or improve something that already exists by finding ways to increase its functionality, performance, reliability, efficiency and/or quality. There are four metrics every R&D company has to qualify in Texas to be eligible for Texas R&D credit. They are permitted purpose, elimination of uncertainty, process of experimentation and technological foundation. To explain further, R&D carried out by any enterprise must have a strong purpose to create or improve a business component that it intends to sell, lease or license. The R&D should aim at eliminating an uncertainty associated with the science and understanding of the business component. Qualifying for Texas R&D credit heavily relies on the quality of the experiments done and they can’t be mere trial and error methods, having no sound theory or hypothesis. Lastly, in order to be eligible for R&D credit in Texas, the experiments carried out must have a strong technical foundation based on the principles of physical science, biology, engineering and/or computer science. Adding to it, research and development of arts and humanities, reverse engineering, adaption and duplication of existing business components won’t be regarded as eligibility criteria. Are laboratories a mandatory requirement for Texas R&D credit? No. Though research and development is all about creating new things or improving existing ones through experiments in laboratories, it doesn’t mean scientific methods followed to improve customer service or scientific methods followed to address a production issue won’t qualify for a R&D credit in Texas. As long as the methods followed are based on the principles of applied science, have a strong theoretical background and intended to eliminate uncertainties, R&D is always encouraged by tax incentives whether or not a company uses laboratories. Do R&D tax credits trigger an IRS audit? Though the chances are very rare, especially in the case of small businesses and startups, big companies who make big profits on successful outcomes of their research and development, might face an IRS tax audit. But as long as the concerned records are well-maintained and genuine, one doesn’t need to be bothered about claiming Texas R&D credit. Swanson Reed, LLC offers to manage all facets of the R&D tax credit program, from claim preparation and audit compliance to management of full claim disputes, to businesses and R&D companies in Texas ( www.texastaxcredit.com/services/ ), California, San Francisco, Dallas, Orlando and other parts of the USA. For more on R&D credit, visit Wikipedia.org.
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