The R&D Tax Credit is an incentive to protect American jobs by rewarding companies who are constantly striving for the “next best thing” here in the U.S. From startups to mid-sized businesses to Fortune 500s, this tax credit is for those who innovate, create, and problem solve with American ingenuity.
Form 6765 is often overlooked by CPAs and taxpayers for its complexity. It’s a shame because taking advantage of the R&D Tax Credit is worthwhile. If you can legally lower your tax bill, why wouldn’t you?!
Before filling out Form 6765, you must determine whether or not an employee’s time on the job is considered to be “qualified research activities” (also known as QRAs).
In order to determine whether or not an employee’s time is considered as QRAs, we must determine whether the work conducted passes each section of what the IRS calls “The Four-Part Test.”
- Qualified Purpose — activities must be intended to problem solve, create, innovate, evaluate, invent and/or experiment. Simply making small adjustments, like changing the color of a product for aesthetic purposes, doesn’t count.
- Elimination of Uncertainty — activities must be intended to eliminate the uncertainty of the development of a new or improved product, process, technique, software, formulation, or invention. In other words, this means you are trying to “push past” any barriers that might stop you from achieving your end result.
- Process of Experimentation — activities included trial and error, and/or evaluation of solutions while attempting to reach an end result. Experiments don’t necessarily need to succeed. In fact, the IRS deems “failed” experiments as qualified.
- Technological in Nature — activities must rely on hard science. Examples of sciences include engineering, environmental/life sciences, software and manufacturing/design.
Ready to calculate the R&D Tax Credit? It all starts with the Form 6765. Click on the below button to get started!
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