A federal research and development (R&D) tax credit rewards innovative veterinarian pharmaceutical companies. The credit can reduce a company’s overall tax burden.
Developing animal drugs, also known as veterinarian pharmaceuticals, serves a vital purpose in today’s world. Not only do these products keep livestock healthy, but our four-legged friends at home can experience a higher quality of life too. While the development of these drugs can be costly, a federal R&D tax credit can reward your pharmaceutical company for its cutting edge advancements. Keep reading to learn what you need to know about the federal R&D tax credit program and why this resource is vital to your company’s growth.
How does the Federal R&D Tаx Credit Benefit Veterinarian Pharmaceutical Companies?
First introduced to the U.S. in 1981 as a temporary program, the federal R&D tax program has been a permanent part of the U.S. tax code since the 2015 PATH Act was signed. This tax credit incentivizes companies to conduct more R&D by offering a sizable reward for the work that has been done. Here is a detailed breakdown of how a federal R&D tax credit can benefit your company:
- Payroll Tax. Companies that are no more than five years old and are pre-revenue or bringing in less than $5 million in revenue can use a federal R&D credit to offset the social security portion of the payroll tax.
- Income Tax. Companies that bring in more than $5 million in revenue can use the credit to directly reduce the income portion of the business tax.
- Carry Forward. A company can choose to carry its R&D tax credit forward by 20 years.
As you can see, receiving a federal R&D tax credit can provide a tremendous financial boost to your business. Now, if you develop veterinarian pharmaceuticals, you may think you’re a shoo-in for this credit, but you must pass a short test to see if you qualify.
How is Eligibility for the Federal R&D Tax Credit Determined?
Thankfully, determining a company’s eligibility for an R&D tax credit isn’t too difficult. Take a look at these questions and see if you can answer ‘yes’ to each one:
- Has your pharmaceutical company developed a new product or process or improved upon existing functionality?
- Has your pharmaceutical company dealt with some form of uncertainty in the development process?
- Has your pharmaceutical company utilized a process of experimentation to eliminate uncertainty?
- Has your pharmaceutical company conducted experimentation that relied on engineering, biological, physical, or computer sciences?
- Has your pharmaceutical company employed all or a portion of your workers within the United States?
If you have any questions while reviewing this test, reach out to a tax credit expert. An expert can guide you through this early stage and determine if your company is a good tax credit candidate. After determining your eligibility, the next step will be identifying your qualified research expenditures (QRE) to calculate an estimate of your credit. Your QRE contains highly specified elements as you can see here:
- The salaries of company employees focused on R&D
- The cost of disposable supplies bought for R&D purposes
- The cost of hiring 3rd party contractors for R&D
It’s important to note that only the salaries and costs of U.S.-based employees and contractors count as eligible QRE. For example, let’s say you hire a contractor based in Kansas to develop faster delivery systems for your veterinarian pharmaceuticals and a contractor in Austria for other R&D activities. Only the cost of the Kansas contractor fits into your credit calculation. Since your credit could be 7-10% of your total QRE, you must understand which activities can enter into the calculation.
What Activities Meet QRE Standards?
Here are a just few activities that could be considered as qualifying QRE activities:
- Developing animal testing alternatives
- Designing better drug delivery systems
- Creating new chemical product formulations
- Constructing new product prototypes for testing
Testing different advertising schemes or trying out different brands of coffee doesn’t count as QRE — even if you’re looking for the best way to power up your company’s scientists. Now that you know what types of activities count as QRE, use this free R&D tax credit calculator to see how much your credit could be.
R&D Tax Credits for Veterinarian Pharmaceuticals: What You Need to Know
Companies producing veterinarian pharmaceuticals could be excellent candidates for a federal R&D tax credit if all necessary criteria are met. Companies must be based in the U.S. and have qualifying QRE. If eligible, a company could receive a credit matching 10% of its QRE. The credit could then be used to offset a portion of the payroll or income tax. Call Bowers R&D at 610-368-5877 to get started on your R&D tax credit application.