Navigating the R&D Tax Credit
EXECUTIVE SUMMARY * The research and development credit of IRC [section] 41 can be a significant advantage for businesses that develop, design or improve products, techniques, software and similar activities. It can be calculated under either the regular research credit (RRC) method or the alternative simplified credit (ASC) method. * Under the RRC method, the credit equals 20% of qualified research expenditures (QREs) for a tax year over a base amount established by the taxpayer in 1984-1988 or by another method for companies that started up subsequently. This method may be best for companies that can document a low base amount. The ASC equals 14% (for the 2009 tax year) of QREs over 50% of the average annual QREs in the three immediately preceding tax years. If the taxpayer has no QREs in any of the three preceding tax years, the ASC may be 6% of the tax year's QREs. This method may be the best choice for taxpayers with in complete records from the mid-1980s, taxpayers complicated by mergers and acquisitions, or taxpayers with a high base amount from that period. * "Research or experimental expenditures" eligible for the RD thus it is intended to reward, m general, not static programs but those that pursue innovation with continually increasing investment. …