There are four expense types included in calculating the R&D tax credit: Payroll, Contracting, and Supplies & Computer Lease/Rentals
Payroll
Employee payroll is typically the largest component of the calculation. 100% of these costs are eligible for the credit.
Senior-level employees can be included to the degree they directly contributed to the innovation and are no more than two levels removed from the direct innovation workers.
Contracting
Contracting costs, such as staff augmentation or contracted projects, can be included. 65% of these costs are eligible for the credit.
- The activity must occur in the United States.
- You must retain intellectual property rights and you must be responsible for the fees even if the innovation was not successful.
Supplies
Supplies that are not capitalized and are used or consumed in the development of your innovation can be included. 100% of these costs are eligible for the credit.
- Some supplies will be directly related to the innovation and others will support it.
- Do not include rent, overhead, or travel expenses, as they generally will not qualify.
Computer Lease/Rental
This is the amount you paid or incurred to another person for the right to use computers in the conduct of qualified research. 100% of these costs are eligible for the credit. To qualify:
- The computer must be owned and operated by someone other than you.
- The device must be located off your premises.
- You must not be the primary user of the computer.
