In today’s economy of increasing challenges, price competition, and rising costs an often-overlooked strategy is to utilize tax efficiencies to enhance the bottom line. One tax strategy that is sometimes overlooked and often mis-handled is the utilization of Research & Experimentation Expenditures, (R & E). Many business qualify for a tax credit related to the R & E expenditures made during the tax year. In essence the credit increases the bottom line without having revenues increase. And in fact, utilizing the R & E credit may create refunds on previously filed Federal and State income tax returns.

Many taxpayers are surprised to find that they actually incur qualifying R & E expenditures that would allow for the utilization of tax credits. For R & E expenditures to qualify for purposes of the credit there are three major requirements:

  • The expenditures must be made in connection with the discovery of information that is technological in nature.
  • The expenditures must be useful in the development of a new or improved business component.
  • There must be a process of experimentation, meaning that there is an “uncertainty” requirement.
Including the above there are other areas of review to determine if one is qualified for the credit. Additionally, in reviewing, quantifying, and calculating the credit there needs to be thorough documentation.


There are times when the utilization of a tax credit may not be as beneficial as the use of the R & E expenditures in other ways. The most obvious situation is in situations when there is no current tax liability. Other situations, which are very often overlooked, are during times of asset sales, mergers, acquisitions, and other business transactions and combinations where the R & E can be used in ways to minimize tax well in excess of the utilization of a tax credit.

If you incur expenditures that would fit into the areas listed above Business Financial Consultants can assist you in minimizing your tax liability via utilization of a tax credit. Even more so, if you do have these types of expenditures and you are transactional oriented or entering into a transaction, (as listed in the above paragraph), then we can assist you in best positioning these expenses for the maximum tax strategy.