For every business, there comes a time when updates are necessary. Maybe it's revising a process to be more efficient, updating a product to be more effective, or redesigning a website to be more user-friendly.
You may already understand that improvements to your products and processes may qualify for the R&D Tax Credit, but what about a website redesign? Like all questions involving this tax credit, the answer lies in the law’s Four-Part Test.
In most cases, a manufacturer’s website redesign will not meet the requirements of the test, yet some redesigns do qualify. What’s the difference? Here's what you need to know about the R&D Tax Credit and website redesign.
Does My Website Redesign Qualify for R&D?
Not all website redesign is created equal, and not all redesign is done for the same purpose. It's important to understand the requirements for the R&D Tax Credit and ask the right questions to reveal whether your website redesign project has the potential to qualify.
The R&D Tax Credit was created to encourage the development of new and/or improved products or processes, so routine website work like maintaining content, updating information or refreshing the site’s look don’t qualify. However, if the work involves integrations that require design, development, coding, testing, or other related functions, then the redesign may qualify.
The Redesign Must Pass The Four-Part Test
The IRS clearly defined the types of activities that qualify for the R&D Tax Credit by creating a Four-Part Test. In order to qualify, an activity must meet the requirements of all four elements:
Permitted Purpose. This is the activity intended to make or improve either a product or process that results in improved function, performance, reliability, quality or cost efficiency.
Technical Uncertainty. This is the activity intended to eliminate technical uncertainty when developing or improving a product or process related to methodology, design, techniques, formulas or inventions.
Process of Experimentation. This is the activity that includes a process of experimentation to eliminate or resolve technical uncertainty. During the process, various alternatives and approaches are evaluated by modeling, simulation, trial and error, prototyping and other methods.
Technological in Nature. The process of experimentation must rely on the hard sciences (engineering, physics, biology, chemistry, computer science).
Want some examples? A website that’s redesigned to integrate with an ordering system, a customer relationship management system, e-commerce solutions, and inventory management systems are all website redesigns that could qualify for the credit, as long as they pass the law’s Four-Part Test. Yet cosmetic changes for a manufacturer’s site would not.
Because it is complex to both determine if you qualify for the R&D Tax Credit and apply for the credit, it is best to work with a professional. Check with an industry expert to see if there are ways to reduce your tax liabilities.