The research and development (R&D) tax credit has been part of the US tax law since 1981. Recent changes in the regulations allow for a broader range of companies to benefit from the credit.

As the pace of your business accelerates and competition increases, you may be more likely to overlook this source of cash because you lack the time, resources, or expertise needed to identify and manage R&D tax credit claims.

Doeren Mayhew’s Special Projects Group uses the most efficient and effective means to help you obtain the most from the available R&D tax incentives so you can get the credit you deserve.

What Qualifies as R&D?

The R&D credit is generally allowed for expenditures paid or incurred for qualified research. The research must be undertaken for discovering information that is technological in nature, and its application must be intended for use in developing a new product and/or process or improvement to an existing product and/or process. The research must include a process of experimentation with a view to improve function, performance, reliability, quality, or significantly reduce cost.

Qualifying R&D Activities

In general, it is not obvious what will qualify as Qualified Research Expenditures (QREs) without an in-depth discussion about a company. However, the following activities likely fall under the category of QREs:

Developing new, improved, or more reliable products, processes, and/or formulas
Developing prototypes or models (including computer generated models)
Applying for patents
Testing new concepts
Developing new technology
Trying new or different raw materials
Developing or improving production and/or manufacturing processes
Developing, implementing, or upgrading systems and/or software
Employing outside consultants or contractors to perform any of the above stated activities

R&D Tax Credit Computation

The R&D Tax Credit consists of Qualified Research Expenditures (QREs) from wages, supplies, and contract research (65%).

The R&D Tax Credit offers computation under different methods to yield the maximum credit amount for your company, including Regular Credit Method, Alternative Simplified Method (ASC), and the Alternative Incremental Research Credit (AIRC).

The Tax Relief and Health Care Act of 2006 enacted a third method of computing the credit. For tax years ending after 2006, a taxpayer can elect the alternative simplified credit (ASC). The ASC base amount computation is equal to the average qualified research expenditures (QREs) for the three tax years preceding the tax year for which the credit is being determined.

The regular credit method base amount computation uses prior year gross receipts. The fixed base percentage is multiplied by the average of the prior four year gross receipts. In the instance of a company with growing gross receipts and steady QREs, the credit computed could be minimal to non-existent.

The ASC gives companies that are base year sensitive under the regular credit method a chance to cash in on their research and development expenses.

While the Alternative Incremental Research Credit (AIRC) has been available as an option for computing the R&D Tax Credit, the Emergency Economic Stabilization Act 2008 eliminates the AIRC method for taxable years starting in 2009.

The Emergency Economic Stabilization Act also increased the ASC from 12% to 14% for tax years ending after December 31, 2008

Michigan R&D Facts

Michigan ranks second in the nation in R&D spending
More than one-third of Michigan's R&D facilities are located in Oakland County
Michigan companies file over 3,000 patents a year, placing Michigan in the top 10 states for total number of patents granted

Doeren Mayhew R&D Tax Credit Brochure