RESEARCH AND DEVELOPMENT (R&D) TAX CREDIT SERVICES

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Multidisciplinary Team 

Attorneys, Tax Professionals, & Engineers

$800M+

in Federal and State R&D Tax Credits

2,700 +

R&D Tax Credit Studies Completed

PRECISE | RESPONSIVE | TRUSTWORTHY

01

About the R&D Tax Credit

The federal R&D Tax Credit is a general business tax credit for companies that incur R&D expenses in the United States. The tax credit, which was originally introduced in 1981, is intended to incentivize companies to develop new and improved products and processes. In addition to the federal tax credit, about 40 states have their own R&D tax credit initiatives.

With a dollar-for-dollar reduction in federal and state tax liability, the Research and Development Credit provides improved cash flow, offering up to 10 cents in benefit for every qualifying dollar identified in a performed study. The credit is permanent and may be carried back one tax year and forward up to 20 years.

02

Qualifying for the R&D Tax Credit

Qualifying for R&D Tax Credit

Qualifying activities include:

•  Development of products or processes using specific know-how that is treated as a trade secret or is patentable.

•  Simulations, modeling, and systematic trial and error processes to develop or improve a product, process, technique, formula, invention, or software.

•  Improvement of manufacturing processes.

•  Evaluation of engineering design iterations.

•  Improvement of existing products to enhance energy efficiencies to meet regulatory requirements.

•  Attempt to develop a product or process improvement that was eventually abandoned. A project does not have to be successful to be eligible.

03

Industries that Often Successfully Claim the R&D Tax Credit

•  Software and Technology

•  Manufacturing

•  Food and Beverage Production

•  Architecture and Construction

•  Printing and Packaging

•  Engineering

•  Life Sciences

How Does the R&D Credit Apply to Your Business?

· Learn more about R&D Tax Credits

· Review your situation and evaluate opportunities

· Calculate a tax savings estimate

All R&D Tax Credit Companies Are Not Created Equal: The Capstan Difference

Physical
Report

Including all Raw Data, Tables, Visual Representations
of Data, and Thorough Analysis

Efficient Report Delivery

Most are Completed within 3-6 Months- Half the Delivery Time of the Average R&D Tax Credit Company

Defensible

IRS-Preferred, Project-Based
Analysis Methodology

Meticulous

On-Site Data Collection
Ensures all Possible Qualified Expenses are Captured

Transparent

Flat-Fee Structure
No Unexpected Additional Fees

Subject Matter Experts

In Architecture, Engineering, Construction, Software, Manufacturing, and Life Sciences

Industry-Specific Resources

ARCHITECTURE & ENGINEERING R&D Tax Credits

ARCHITECTURE & ENGINEERING

R&D Tax Credit for FOOD, BEVERAGE & HEALTH

FOOD, BEVERAGE, & HEALTH

Custom PRODUCT DESIGN & MANUFACTURING

PRODUCT DESIGN & MANUFACTURING

Software Development R&D Tax Credit

SOFTWARE DEVELOPMENT

R&D Tax Credits FAQ


ABOUT THE R&D TAX CREDIT

What is the Federal Research and Development Tax Credit?

The federal R&D Tax Credit is a general business tax credit for companies that incur R&D expenses in the United States. The tax credit, which was originally introduced in 1981, is intended to incentivize companies to develop new and improved products and processes. In addition to the federal tax credit, about 40 states have their own R&D tax credit initiatives.

What are the Benefits of the Federal R&D Tax Credit?

With a dollar-for-dollar reduction in federal and state tax liability, the R&D Tax Credit provides improved cash flow, offering up to 10 cents in benefit for every qualifying dollar identified in a performed study.

What are the Eligibility Criteria for the R&D Credit?

Since the R&D Tax Credit is activities-based, eligibility is determined by testing the research activities a company performs.

In order to qualify for the R&D Tax Credit, a research activity must pass all four parts of the Four-Part Test:

Part #1: The research activity must be related to developing a new or improved business component for a “qualified purpose”—i.e. related to new or improved functionality, quality, reliability, or performance.

Part #2: The research activity must be undertaken for the purpose of eliminating some uncertainty related to appropriate design, method, or capability.  

Part #3: The research activity must involve some Process of Experimentation designed to resolve the uncertainty.   

Part #4: The research activity must fundamentally rely on principles of physical sciences, biological sciences, computer science, or engineering, or their applications.

What are the Four Pillars of R&D?

The “Four Pillars of R&D” are the criteria that comprise the Four-Part Test.   The “Four Pillars” is just another name for the “Four Parts.”

Who Qualifies for the Research and Development Credit?

Anyone who meets the eligibility criteria above qualifies for the R&D Tax Credit.

What are the Types of Expenses that Qualify for the Research and Development Credit?

There are 4 types of expenses that can qualify for the credit:

o  Employee Wages

o  Supplies and Materials

o  Third Party Contractor Costs (Must Reside in US)

o  Cloud Hosting Expenses

Based on industry and day-to-day business activities, you may qualify for one or several types of expenses for the credit.  You may take all 4 types of expenses if applicable.

How can I Claim the Research and Development Tax Credit?

Businesses can claim the R&D Credit by filing IRS Form 6765, Credit for Increasing Research Activities. Taxpayers must provide “sufficient documentation” to support the amount of QREs they are claiming.  The right R&D Tax Credit companies will assist in ensuring that documentation is sufficient.  

Keep in mind that the amount of credit available to a taxpayer is limited to the amount of tax liability accrued by the taxpayer in a given tax year.  However, the credit can be carried back one year, and then carried forward for 20 years.

Can I Amend Prior Year Returns to Claim the Federal R&D Tax Credit?

Yes. Federal amendment rules apply and permit the amendment of returns to retroactively capture the R&D credit. The standard 3-year window for amending returns also applies to R&D Credit amendments. Your R&D Tax Credit company can work with your tax professional to make this happen.

Are R&D Credits Still Considered a Tier 1 Audit Issue?

No, the R&D Credit is not considered a Tier 1 issue – in fact, the IRS officially eliminated its entire tiering system in 2012.  Claiming the R&D Tax Credit does not increase the likelihood of an audit in any way.

That said, it is critical to thoroughly document qualified research activities and costs in the event of IRS scrutiny. There is no specific type of documentation required, but the documentation must be “sufficient” (§ 6001).

An object lesson took place in April of 2019, reminding taxpayers of the consequences of insufficient documentation. In Siemer Milling Company (Siemer Milling) v. Commissioner of Internal Revenue, the Court ruled that Siemer Milling lacked sufficient documentation to support their claimed Credits, and subsequently disallowed over $235,000 in Credits. The Court held that Siemer Milling did not provide sufficient documentation to demonstrate that their business activity had met all parts of the Four-Part Test, particularly Part 3 – Process of Experimentation.

Is it Worth Calculating the R&D Credit if There’s Net Loss and No Tax Due in the Coming Several Years?

It may very well be.  Small businesses that are operating in a loss and don’t have tax liability yet may be eligible for the Payroll R&D Tax Credit, a modified version of the Federal R&D Tax Credit. 

The Payroll R&D Tax Credit permits “Qualified Small Businesses” to claim up to $500,000 annually for tax years beginning after December 31, 2022, and to use that credit to offset the 6.2% employer portion of the Social Security payroll tax under the Federal Insurance Contributions Act (FICA) as well as the 1.45% employer portion of the Medicare payroll tax liability. (For tax years prior to December 31, 2022, the maximum claim is $250,000 and the credit only applies to the social security tax.)  

The Payroll R&D Tax Credit can be taken for up to 5 years, resulting in a potential total credit of $2.5M to apply against payroll taxes.

Your R&D Tax Credit company can help you determine if you are a Qualified Small Business.

I’m in Pennsylvania. Are there PA R&D Credits?

Yes. About 40 states have their own version of the R&D credit.  The PA R&D Credit is structured somewhat similarly to the federal version with a few important differences.  Your R&D Tax Credit Company can help you claim the federal version of the Research and Development Tax Credit, along with a state version, where possible.


ABOUT R&D TAX CREDIT COMPANIES

I’m considering several R&D Tax Credit Companies. How Do I Select the Best R&D Tax Credit Company for Me?

Finding the right R&D Tax Credit Company is crucial.  Your tax professional may recommend a preferred partner.  If not, it’s important to consider a provider’s experience, methodology, and approach to tax consulting.  Ask these eight questions to help select the right R&D Tax Credit company.  

How much do you charge for a Research and Development Tax Credit Study?

We use a transparent flat-fee system based on project scope – no matter how complicated your project may become, your fee is set at the beginning of the project.

IRS Circular 230 prohibits providers from charging fees contingent on a specific result – if a provider proposes a percentage-based fee, proceed with caution.

I see that Capstan is based in Pennsylvania. Do you only perform PA R&D Credit Studies?

Capstan is headquartered in Dresher, PA, but we perform R&D Tax Credit studies nationwide.

Case Studies

01

Manufacturing

R&D Tax credit of Manufacturing industry

Throughout the project, the Company relied on the principles of engineering to create a metal wall panel system that met the required performance, functionality, and reliability standards. For example, the Company utilized the principles of mechanical engineering to evaluate the impacts of varying panel materials and thicknesses on the building’s structure.

02

Software

R&D Tax credits software industry

Throughout the project, the Company relied on the principles of computer science to achieve the most appropriate software design. For example, the Company evaluated and tested various algorithms and source codes throughout the project to establish functional specifications that satisfied the performance and reliability requirements.