Key Takeaways
- R&D Credit (§41) rewards incremental research expenditures.
- Four-part test: permitted purpose, uncertainty, experimentation, technological.
- Qualified Small Business (<$5M receipts): up to $500,000 payroll tax offset.
- Disabled Access Credit (§44): 50% of eligible expenses between $250-$10,250.
- Maximum Disabled Access Credit: $5,000 per year.
- R&E costs: immediate expensing restored for Tax Year 2024.
R&D Credit & Disabled Access Credit
Why This Matters for the Exam
The R&D credit and Disabled Access Credit are heavily tested. Know the four-part test, payroll tax offset, and the specific Disabled Access math.
Expect at least 3-4 questions on these credits.
Research & Development (R&D) Credit (§41)
The R&D credit encourages U.S. innovation:
| Element | Description |
|---|---|
| Type | Incremental credit (rewards increased spending) |
| Form | Form 6765 |
| Purpose | New/improved products, processes, software |
The Four-Part Test for Qualified Research
All four must be met:
| Test | Requirement |
|---|---|
| 1. Permitted Purpose | New/improved function, performance, reliability, quality |
| 2. Elimination of Uncertainty | Intended to discover information to eliminate uncertainty |
| 3. Process of Experimentation | Simulation, trial and error, modeling |
| 4. Technological in Nature | Relies on physical science, biology, engineering, CS |
R&D Expenditures Treatment (Tax Year 2024)
| Treatment | Rule |
|---|---|
| Domestic R&E | Immediate expensing (100% deduction) |
| Foreign R&E | Amortize over 15 years |
| Effective date | Tax Year 2024 and forward |
Payroll Tax Offset for Startups
Qualified Small Businesses can offset payroll taxes instead of income tax:
| Requirement | Threshold |
|---|---|
| Gross receipts | <$5 million |
| Years of receipts | ≤5 years |
| Maximum offset | $500,000/year |
| Split | $250,000 SS + $250,000 Medicare |
Disabled Access Credit (§44)
Small businesses can claim a credit for accessibility improvements:
| Requirement | Threshold |
|---|---|
| Gross receipts | ≤$1 million, OR |
| Employees | ≤30 full-time |
Eligible Expenses
| Type | Examples |
|---|---|
| Barrier removal | Ramps, door widening |
| Equipment | Adaptive devices |
| Services | Interpreters, readers |
Disabled Access Credit Calculation
| Element | Amount |
|---|---|
| Floor | $250 (no credit on first $250) |
| Ceiling | $10,250 |
| Rate | 50% |
| Maximum credit | $5,000 |
Calculation Formula
| Step | Calculation |
|---|---|
| Eligible expenses | $X |
| Minus floor | $X - $250 |
| Capped at | $10,000 |
| Credit | Result × 50% |
| Maximum | $5,000 |
Calculation Examples
| Expenses | Calculation | Credit |
|---|---|---|
| $500 | ($500 - $250) × 50% | $125 |
| $5,000 | ($5,000 - $250) × 50% | $2,375 |
| $12,000 | ($10,250 - $250) × 50% | $5,000 (max) |
Real-World Scenario
Scenario: Tech startup in year 3 with $4M receipts has $200,000 R&D credit but no income tax liability.
- Qualified Small Business: Yes (<$5M, ≤5 years).
- Payroll tax offset: Can offset up to $500,000 of payroll taxes.
- Result: Uses $200,000 against employer SS/Medicare taxes.
On the Exam
Expect 3-4 questions on these credits, typically:
- Four-Part Test Questions: "Which is NOT a requirement for qualified research?"
- Payroll Offset Questions: "What is the maximum payroll tax offset?"
- Disabled Access Questions: "What is the credit for $8,000 in accessibility expenses?"
The key is to remember: R&D = four-part test, $500k payroll offset for QSB. Disabled Access = 50% of ($250-$10,250), max $5,000.
Tech startup ($4M receipts, year 3) has $200k R&D credit, no income tax. What can they do?
Small business spends $12,000 on wheelchair ramp. Maximum Disabled Access Credit?
How are domestic R&E expenditures treated for Tax Year 2024?