Enacted in 1981 to encourage research and development (R&D) activities in the United States, the R&D tax credit reduces tax liability for organizations that perform certain activities to develop new or improved products, processes, software, techniques, formulas or inventions.

Because of the broad definition for qualified activities, businesses from almost every industry have claimed R&D tax credits. If you have employees or contractors in the United States who spend any time developing new or improved products, processes, software, algorithms, formulas, or inventions, then you likely qualify for the R&D tax credit.

The criteria for qualified research activities and expenses is very broad, and certain types of companies (i.e. software, hardware, science, construction, beauty, startups, etc.) are extremely likely to qualify for at least some amount of credit.

Additionally, your projects do not need to succeed in order to qualify. Even if a project fails or is put on hold, you can still claim project expenses if they meet the criteria for qualified research.

You can claim the following expenses for qualified activities:

Employee wages
Payments to contractors
Cloud hosting and infrastructure costs
Cost of supplies

You can get about 10% back on qualifying expenses such as wages, contractor costs, cloud hosting and infrastructure, supplies, and legal costs.

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The R&D credit can be applied against payroll taxes beginning the quarter after the credit is elected. For example, if you file for the credit in Q1, you will receive a credit to offset your payroll taxes beginning in Q2, and for every quarter until the credit has been fully consumed. However, the exact timing and method of payment depends on your payroll provider.

Key Dates to be aware of (the below are for 2022 and may vary slightly in other years depending on the calendar):

January 24th – 2022 Tax Season begins!

January 31st – Form 1099 –NEC (Nonemployee Compensation) is due for US Contractors. In general, the total on this form should match a qualified contractor’s pay included in the product.

January 31st – Last 2021 Quarterly Payroll Form 941 is due. (Form 8974 should be attached)

February 15th – Form 1099 MISC (Miscellaneous Income).

March 31st – Deadline for a customer to file (Form 1120) in order to receive Q2 R&D payroll offset.

April 18th – 2021 Form 1120 Corporate Tax Returns or a 6-mon. tax extension is due.

April 30th – First 2022 Quarterly Payroll Form 941 is due. (Form 8974 should be attached).

June 30th – Deadline for a customer to file (Form 1120) in order to receive Q3 R&D payroll offset.

July 31st – Q2 Payroll Form 941 is due. (Form 8974 should be attached).

September 30th – Deadline for a customer to file (Form 1120) in order to receive Q4 R&D payroll offset.

October 17th – Final deadline to file a timely Form 1120 Corporate Tax Return if an extension was filed by April 18th.

October 31st – Q3 Payroll Form 941 is due. (Form 8974 should be attached).

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