Could R&D Tax Credit Benefit Your Small Business?

If you are running your business in Texas; in any of the cities namely Austin, Houston, San Antonio, Fort Worth or Dallas, you can check if your business qualifies for the research and development tax credit. You can read on to find out more about this R&D Tax Credit which was added as part of the new regulatory bill that was passed by the Government of Texas and is aimed to help businesses avail the research and development tax credit.

1.  What is R&D tax credit?

If your business is experimental in nature, then you would require a huge capital of money that goes in as investment. But, at the same time, you are not aware of the outcomes of your business venture. It is true for businesses that are into medical and research field or are into prototype development. So, in such cases you can avail tax credit. Read below to see the checklist if your small business venture qualifies for the same.

a.  Your business ventures are experimental in nature

b.  You are into medical research

c.  It benefits the medical field in terms of new pharmaceuticals or new equipment

d.  Your business produces outputs that help a large mass of people to improve safety, productivity or reliability

e.  your company develops new machines and prototypes

f.  It develops software’s for the welfare of the larger masses and not for commercial sale

g.  Your business and research takes any help for higher educational institutions such as secondary and higher secondary institutions

However, if you have started a small business and your business deals with any of the below categories, you cannot avail for this benefit.

a.  Your business venture or research is in the field of beauty or cosmetics

b.  Your company is fully or partially funded by any agency or by the government

c.  If the output of your business venture is any study or survey

2.  How can it affect your small business/startup?

The research and development tax credit is not just for established companies. Even small business ventures can avail this credit. It is also applicable for startups that are located in Texas, in any of the cities like Austin, Houston, San Antonio, Fort Worth or Dallas. If your company is incorporated after the 31st of December 1983 or has fewer than 3 years of qualified research expenditures and revenues between 1984 and 1988, then you can qualify for Texas R&D credit. However, it is also applicable to well established companies which have been in the industry for a long time.

3.  How to apply for research and development tax credit?

The Internal Revenue Services (IRS) provides a Qualified Research Exemption Certificate, which makes you eligible for the Texas Research and Development tax credit. If your business qualifies for the Research and development tax benefit, you need to provide this certification at the time of filling the form. You need to provide a signed and fully filled copy of a Qualified Research Exemption Certificate. You cannot use the generic tax exemption certificate to file for your R & D benefit. This process needs to be completed before the Tax day; which is the 15th of April for every year.

4.  Can you avail for alternative simplified tax credit?

If your company is a small business venture with little or no seed capital, then you might not be in a position to adequately understand and estimate if your company falls under the category of research and development (www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Research-and-Development-Manufacturing-Tax-Tips).  In such cases, you might need professional help to determine the eligibility criteria and if your company fits this credit. This is called as alternative simplified credit. You can take professional help in such cases so that you do not make any mistakes in evaluating the amount or in estimating and filling up the forms relating to the same.