You may have developed a new process or approach that is innovative in your industry. The costs associated with that research and development could provide a dollar for dollar reduction in your company’s annual tax liability.

The tricky part is that the IRS has a four-part test for determining eligibility for the federal R&D Tax Credit. Taxpayers who pass the test could reduce their tax liability by thousands of dollars in a given year. That means more cash flow and flexibility to pursue your business goals.

It is important to carefully document any related research and development expenses through the year, as that documentation will help to calculate the total credit available. This includes equipment purchases, but also payroll costs associated with the research and development.