How do you determine what qualifies as R&D? That requires understanding the law, your industry, and even the specific products and processes involved. Here are the four key points to consider when reviewing your sales activities.
Those are the guidelines, but what about their applications? Here are eight common sales activities, four that qualify for the credit, and four that do not.
Understanding general requirements of the project. This involves time spent in meetings, phone discussions and email exchanges related to gaining a sound understanding the general requirements (fit, form, function) of this project. Remember, if a current client wants to discuss changing the materials in part of an existing product, or adding new sizes, this still qualifies — even if they decide not to go forward with the changes.
Relationship building.
Evaluating technical specifications. This includes activities related to developing, researching, reviewing, evaluating, or improving/modifying materials and designs (like manufacturers recommendations, alternative quotes, and ECNs).
Developing advertising campaigns.
Approving technical specifications. This would involve the review and sign-off on drawings, schematics, and other technical specifications.
Planning a trade show or staffing the booth.
Quoting. This involves evaluating the manufacturing processes to produce a product to the documented specifications. Be sure to include equipment, tools, molds, processes and workflow.
Again, whether or not you get the business, the time you spent quoting a project can qualify for the R&D Tax Credit.
Updating existing production quotes for material cost.
Once you’ve identified your qualified sales activities, the real fun begins — calculating their cost (and your potential tax savings).
Remember, the R&D Tax Credit was created to encourage the development of new products, which can be manufactured for new or existing clients. Don’t miss out on the opportunity to recapture your qualified expenses by failing to identify them.