Lawyers, Don’t Walk Away from Money: Research and Development Credits Might Apply to You

Lawyers who think Research & Development Tax Credits are only for manufacturers might be missing out on money for themselves.

Credits worth more than $12 billion are being granted annually to a wide range of industries, including law firms.

The IRS even allows companies to go back to previous years to see if the credit can be taken retroactively. Some credits offset federal taxes, and many states offer generous programs, as well.

Credits Reward Efficiency, Improvements

The R&D Credit has been around for several decades. It is intended for businesses that are designing or improving their own products, processes, techniques or software. It’s great for businesses of any age or size, and virtually any size of investment.

The intent is to encourage continuous investments and improvements for R&D efforts performed in the United States.

It can get pretty technical learning specifically which expenses qualify. But it’s good to have a general awareness of what type of expenditures you should look out for so you can seek the advice of an R&D Tax Credit specialist.

What Are ‘Qualified Research Expenses’?

Examples of what the IRS has listed as “qualified research expenses” for R&D activities include:

• Developing or testing new processes, formulas or products
• Certification testing to meet product or industry specifications
• Environmental testing to achieve industry or regulatory requirements
• Developing new technology
• Developing new software (including for internal use)
• Prototyping new or improved software functionalities
• Improving or refining internal processes and procedures

One thing to remember: The expense must have a “research” component, or some level of uncertainty associated with achieving the project’s objectives. It should be experimental and intended to achieve higher efficiency or productivity.

The Bottom Line

Although R&D Credits are a complicated topic that requires extensive expertise, lawyers and law firm managers should understand how they might benefit you.

It’s always helpful to get an expert opinion, which can also turn up expenses that you might have missed – and, yes, money you left on the table.