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Tax invoice format for Research and Development

hi I'm Joe Stoddard I am with I'd Bailey's National Tax Office I worked in the R&D or research and development development tax credit area helping companies identify federal credits for R&D is all the state benefits the four-part test is is really referencing section 41 of the Internal Revenue Code and that's the qualitative test that we use to determine if a specific activity qualify for the credit so in terms of what what's in the four-part test very you know very quick very briefly if they've been doing something new or improved in terms of function performance reliability or quality that could be an improvement to an existing product for example be the first part of the four-part test new or improved the second part would be there has to be some uncertainty that can be capability issues are we able to do something methodology issues how best to do it or even appropriateness of design so even that level of uncertainty would meet the qualification requirements what's the best design for my product or process the third problem of the four-part test is the activities have to rely on experimentation because you're working to resolve your unknowns you have a process set up to evaluate one or more alternatives that can be through a formal process of forming a hypothesis and testing that or less formal process of systematic trial and error so those sorts of you have that set up you would meet that third experimentation requirement and finally the fourth prong and deputies have to be technological in nature that rely on the hard sciences so computer science engineering biological sciences computer physical sciences those are the types of hard sciences that weave that definition so for an activity or a project to qualified it would have to meet each piece from about before purchase so there's there's lots of benefits that the main benefit would be this is the this is a dollar to dollar tax reduction for all of the qualified dollars that we can find and those dollars are typically wages and supplies and that sort of thing there's a on the federal side there's a maximum six and a half percent benefit for this credit so if we're able to identify a hundred thousand dollars of qualified costs that that client of that company would get a sixty five hundred dollar dollar for dollar tax reduction they can use to offset tax I have a lot of lot of company of your clients ask me if their activities or their industry qualifies for the RMD tax code I guess my answer would be but as the the rules for what types of activities qualify are not specific to any one industry you don't have to be conducting white lab coat research to benefit from this credit a lot of companies that time is credit from the manufacturing industry for example involved in product development product improvements of all of manufacturing process development i'm software development also qualifies so I already mentioned manufacturing but other in other industries qualified certainly technology is an industry that the qualified software development medical devices life sciences those sorts of things it also renders into into other industries in terms of architecture and engineering other industries that are doing similar types of activities as well another question I get a lot is you know what what costs can I include in this credit and really the main driver of the R&D tax credit is going to be wages so I get up to take essentially a portion of the time spent by the personnel performing the qualified R&D services and those costs our boss will get to take both the direct involvement as well as the direct supervision and direct support of the activity so it's really going I didn't find the folks that are involved in these activities I didn't find their wages and then allocating what portion is qualified it also going to the supply costs that can be raw materials or prototypes of things that you're using during the R&D process and finally we can also include contract research so if you're working with a third party to help with the design or development your third party lab is doing some testing whatever it might be and also look at those third party costs so one one hot topic is that relates to R&D tax credits has to do with the ability to make the credit calculation a little bit simpler there's an election called the alternative simplified credit it allows companies to not look back such a long time in history in order to claim the credit whether the traditional credit works get to look back as far as 30 years in order to claim to identify your base amount on order to claim your credit this election allows you to do that looking only back at the prior three-year period the development is the novice as of this year that final edge regulations allows companies to now make that election on a retroactive basis and amended returns now companies that have never claimed the credit before and go back to a multi-year period to claim this alternative simplified credit instead of only two people too much so we've worked with lots of clients one one recent example the client in the manufacturing industry that has been developing a product a certain way for a lot of years they've recently modified that to extend their product lines but taking it they're taking an existing product that gets a chain just about and be able to offer a new product offering we work with them to identify costs welcome the product side and the process side that would qualify for this for these tax benefits we will identify around fifty thousand dollars of federal credit and significant state credits on the angle complain to the sector