Introduction
Qualified Research Expenses (QREs) are critical for claiming R&D tax credits. Despite their importance, many businesses misunderstand what qualifies. This guide clarifies QREs and provides real-world examples to help you claim credits effectively.
Understanding Qualified Research Expenses
QREs are expenses incurred during qualified research activities. The IRS 4-part test helps determine if activities qualify, but QREs themselves are specific cost categories that support eligible research. Key types of QREs include:
- Wages: Compensation for employees directly engaged in qualified research activities, such as designing, testing, and improving products or processes.
- Supplies: Tangible materials consumed or used in the research process, including prototypes and testing materials.
- Contract Research: Payments to third parties performing qualified research on behalf of your business. The company must retain rights to the research results.
- Cloud Computing & Software: Costs for cloud platforms, development tools, and testing environments directly supporting R&D activities.
Industry-Specific Examples of QREs
- Construction Wages associated with engineering and preconstruction.
- Software Development Developer salaries and cloud service fees for testing new algorithms.
- Manufacturing Costs of prototype materials and wages for engineers testing production methods.
- Biotechnology Lab supplies for experiments and payments to contract research organizations (CROs).
- Aerospace & Defense Materials for wind tunnel tests and salaries for engineers improving aircraft designs.
- Medical Devices: Prototype components for device testing and technician wages for performance trials.
Not sure if you Qualify?
Find out if your activities can potentially meet the 4-Part Test.
Conclusion
Understanding and documenting QREs accurately is essential for maximizing your R&D tax credit. For expert assistance in identifying eligible activities, Contact us today.
