Specifically, what the accounting requirements for research and development (R&D tax credits) for software companies? Are there any reasons not to claim R&D tax credits? What effect on basis do they have, if any, for intellectual property assets?
asked , updated
answered , updated
Calculating the benefit of R&D tax credits is actually fairly complicated. In an optimal situation, a company may be able to claim a credit near the full amount of their qualified R&D expenditures for the year. However, there are many scenarios where a company may only be able to claim a credit that amounts to a single digit percentage of their R&D expenditures for the year.
Businesses must be able to demonstrate the the R&D expenditures are for a permitted purpose, eliminate uncertainty in the R&D process for the business component, follow a systematic process of experimentation, and that the process is based on fundamental science and engineering principles. Check out Wikipedia's summary of the Research and Experimentation Tax Credit for more details on this four part test.
The primary disadvantage of claiming R&D tax credits is the effort and potentially expense of outside advisors required to track and assess the expenses that qualify for the credit. There is no effect on tax basis of assets as a result of claiming R&D tax credits.