{"id":10548,"date":"2021-11-01T12:00:20","date_gmt":"2021-11-01T17:00:20","guid":{"rendered":"https:\/\/www.cainwatters.com\/digitalblogs\/?p=10548"},"modified":"2021-11-02T13:32:05","modified_gmt":"2021-11-02T18:32:05","slug":"research-and-development","status":"publish","type":"post","link":"https:\/\/www.cainwatters.com\/digitalblogs\/research-and-development\/","title":{"rendered":"Research & Development Tax Credits for Dental Practices"},"content":{"rendered":"\t\t
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Can qualified research activities hold up against an IRS audit?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Dental practice owners and the financial advisors that support them are always on the search for advantageous tax credits that can minimize tax liability. Tax-advantaged savings environments and business deductions are all standard good practices<\/span><\/a>. However, there is another tax credit that has recently stepped into dental industry news, the Research and Development (R&D) Tax Credit.<\/p>

The R&D tax credit is available to companies developing new or improved business components, including products, processes, computer software, techniques, formulas or inventions, that result in new or improved functionality, performance, reliability, or quality. It\u2019s available at the federal and state level, with over 30 states offering a credit to offset state tax liability.<\/p>

The research credit is an incremental credit, versus a deduction, which means that a company is rewarded for increasing its spending on research activities. For practices that do not have three years of previously documented research experience, they could qualify for a credit that is 6-8% multiplied by the qualified research expense (QRE).<\/p>

Although there are two different ways to calculate the credit, most calculate it based on wages earned while performing the QRE. For a very simplified example, if a doctor\u2019s annual wages are $300,000, and $100,000 of those wages can be attributed to performing research, the credit could be $6,000 (6% x $100,000).<\/p>

The actual credit amount is complicated. For practices that do have years of documented research, it can still fluctuate significantly based on QRE proceedings for each of the four qualified years. The credit can be anywhere between 6-12% of the QRE. For more information about the credit calculation, please refer to Form 6765 instructions.\u00a0<\/span><\/a><\/p>

With many companies soliciting online and at dental conferences promising tens of thousands of dollars in tax credits for doctors utilizing on-site milling or in-house labs, implementing new technologies or creating new processes and techniques, it\u2019s easy for this credit to sound appealing.<\/p>

But will it hold up against an IRS audit? The following blog outlines the four IRS qualifications that must be met and CWA\u2019s opinion on if owners should attempt to quality for this credit.<\/p>

The Qualified Research Activity must pass a four-part test<\/strong>:<\/h5>
  1. Section 174 Test<\/em><\/strong> (AKA: Qualified Purpose Test or Elimination of Uncertainty Test)