Kirsch Kohn & Bridge, LLP, Here Are Your Articles for Tuesday, May 01, 2018
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Is This Your Situation: Wondering if You're Eligible for R&D Credits


If you're a business owner who wants to eliminate the uncertainty in developing a new product or improving an existing one, you're probably engaging in research and development activities. Whether expenses qualify as R&D expenses depends on the nature of the activity to which the expenses related.

The term "product" has a wide range in this context and can include:

  • Formula
  • Invention
  • Patent
  • Pilot Model
  • Process
  • Technique
  • Similar Property

The IRS notes that "R&D expenditures generally include all expenditures incident to the development or improvement of a product." The IRS provides that the expenses related to obtaining a patent and attorney's fees that help perfect a patent application also qualify.

The following types of expenses do not qualify as R&D expenses:

  • Quality control testing.
  • Advertising or promotions.
  • Consumer surveys.
  • Efficiency surveys.
  • Management studies.
  • Research in connection with literary or historical or similar projects.
  • The acquisition of another's patent, model, production or process.

Generally, you can only make the choice to deduct R&D expenditures in the first year you incur such expenditures. R&D expenses can be deducted in one of three ways:

  • Current year deduction.
  • Amortization of deduction over a period of not less than 60 months. The amortization period begins the month you first receive an economic benefit from the research
  • If you choose to amortize, you can opt for the Optional Write-Off Method by deducting R&D expenses ratably over a 10-year period beginning with the tax year in which those expenses were incurred.

The IRS explains that you must charge to a capital account any R&D expenditures that you do not deduct currently, nor defer and amortize. You are allowed to claim the R&D credit against tax for certain qualified R&D expenditures, and combine the credit as one of the components of the general business credit. It also notes that the R&D credit is a nonrefundable tax credit.

Of course, rules are changing all the time, and there's a lot of fine print. Give us a call and we'll help you make sure you get everything coming to you, without falling afoul of IRS regulations.

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Kirsch Kohn & Bridge, LLP
21550 Oxnard Street, Suite 200
Woodland Hills, CA 91367
(818) 907-6500
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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