R&D Tax Credit

The OBBBA R&D Tax Credit means the option to fully expensing domestic research and development costs in lieu of capitalization starting in the 2025 tax year. If you have costs that were already capitalized and haven't been fully amortized you may elect to accelerate those costs over one or two years.

Qualified research expenses generally fall into 3 categories: employee wages, supplies, and contract research. The research and corresponding expenses then have to pass a 4 part test:

1. Permitted Purpose – for the creation of a new or improved product, process, formula, or software
2. Technological in Nature – engineering, physics, chemistry, or computer science
3. Elimination of Uncertainty – intended to settle technological uncertainty regarding the capability, design, or method of development
4. Process of Experimentation – must involve a systematic process of evaluating alternatives to resolve uncertainty

Small business taxpayers – defined as businesses with a 3-year annual average of $31 million in gross receipts or less – can elect to make this retroactive to tax years 2022, 2023, and 2024 through tax return amendments. However, the cost and time to do so is not always worth the credit, so make sure to ask your Buckno & Lisicky accountant if claiming the credit would be beneficial to you.