Organizations that seek to develop new or improve products and processes can benefit from the R&D tax credit.

However, many businesses are unaware that they could qualify for a dollar-for-dollar tax credit through their daily operations, irrespective of industry or size.

The method to calculate R&D tax credit amounts is not always immediately apparent. If you’re confused about how to calculate R&D credit, Eide Bailly has prepared an R&D tax credit calculator to give you an idea of how much you could be eligible for when filing your taxes.

What is the R&D Tax Credit?

Many businesses eligible to claim this tax credit don’t even know it exists. So, what are R&D tax credits?

The Research and Development tax credit is an initiative launched by the Federal government in 1981 to incentivize American businesses that innovate. It’s designed for research and development, helping companies that design, develop, and improve business components. This can include products, processes, techniques, software, and inventions that result in new or improved reliability, functionality, quality, or performance.

The R&D tax credit is available on the federal level and many states also have a credit. The credit became a permanent part of the tax code in 2015, with the passing of the PATH Act. The PATH Act also revised the qualification requirements, enabling more businesses than ever before to qualify for the credit. It also allowed small businesses to claim the Payroll Tax Credit to lower their payroll taxes.

If you’re unfamiliar with the credit, it probably sounds like you need to be a large national or multinational corporation to qualify, but this isn’t the case. Even smaller businesses can be eligible for substantial amounts in tax relief. So how do you know whether you’re eligible?

What Activities Make You Eligible for the R&D Tax Credit?

Many activities qualify for the R&D tax credit and the Eide Bailly R&D tax credit calculator can provide you with a high-level estimate of your potential credit. Checking your eligibility is simple enough — if you fall under any of the following four categories, you may be able to claim this tax credit:

Your R&D activity is conducted on U.S. soil.
You’re developing or designing innovative products or processes.
You’re investing in improving products and processes.
You’re assessing or implementing new alternatives or developments within the design and development process.

R&D tax credit examples include:

You identify improvements to current products to add new functionality or improve reliability in the field.
You deploy new technology or make changes to your production processes to boost productivity and speed.
You develop new software or improve performance of client-facing technology.

You can claim staff salaries, raw materials, third-party contractors, and computing costs in the R&D tax credit. However, it’s always wise to consult an accountant to ensure that an activity or expense falls under the definition of research and development.

How to Calculate the R&D Tax Credit

You may be wondering whether you should calculate R&D tax credits in-house or if it’s best to hire a professional to assist you with the credit. Before doing either, you could try an online R&D tax credit calculator to learn more about your potential benefit. Performing an R&D credit calculation is complicated, and mistakes could lead to problems with the IRS down the line. So, while an in-house resource or online R&D tax credit calculator may be a good starting point, we always recommend you work with a reputable R&D tax credit service provider. An R&D service provider will assist in determining qualified activities, the associated costs, as well as maximizing the benefit to the business as there are two methods of calculating the credit in addition to navigating the complex rules around the calculations.

R&D Tax Credit Calculator

Easily predict how much you could be eligible for with our R&D tax credit calculator. Our tax credit calculator requires just a few critical pieces of information, and you’ll get an idea of what you could get back when filing your taxes.

All you need to do is enter the number of salaried employees in your research and development department. Enter how much you spent on R&D in the past year, and our calculator will provide you with an estimated tax benefit.

How Much Will the R&D Tax Credit Benefit You?

R&D TAX CALCULATOR

Industry

State

Current number of employees involved in R&D

Current average annual wage of employees involved in R&D

Current annual expense for materials used to construct or test prototypes

Supplies include any tangible property used in R&D, i.e. prototype units (even if eventually sold), experimental fixtures and tooling, and samples used for field testing. Exclude equipment being depreciated.

Current annual expenses paid to domestic (US based) contractors to conduct research or testing

Contractors must be performing research (i.e. design, prototyping, testing, etc.) on behalf of the taxpayer, and must be paid even if the research is unsuccessful to qualify.

Federal credits may be available up to:

This tool is for general information purposes and does not take in to account the complexities of law and factual circumstances that could affect qualification for the credit. Claiming the credit requires a thorough, in-depth analysis of specific issues.

Note that this is only a ballpark figure as the rules are complex and each business has a unique fact pattern which is factored into the credit calculation.. Always hire a professional accountant to help you compute, document, and complete all the forms necessary to claim the R&D tax credit.

R&D Tax Credit FAQs
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Use our calculator to give yourself a ballpark figure and hire an Eide Bailly accountant to protect your business from risk.

REDUCE YOUR TAXES, MAINTAIN COMPLIANCE, AND PLAN AN INTELLIGENT TAX STRATEGY BY GETTING IN TOUCH TODAY.

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