Qualified R&D Expenses
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      1. TaxTaker Knowledge Base
      2. R&D Tax Credit
      3. Qualified R&D Expenses

      What are R&D Supply Expenses

      In this article we will discuss how the IRS defines supplies that can be included for R&D expenses.

      What do you mean by ‘supplies’?

      In the business world, supplies can mean any number of things. However, supplies in the eyes of the IRS and the R&D credit are very specific. These are the items that are used to conduct qualifying research and because they are utilized your business is able to generate a new or improved business component that is technological in nature. Per the IRS, a supply can be anything that isn’t land that does not have a useful life of greater than a year.  

       

      For instance, Acme Pharmaceuticals develops drugs. They have a large laboratory outfitted with heavy and expensive testing equipment. In addition, the lab is supplied with various disposable laboratory supplies including goggles, gloves, rats/mice, chemicals, phials, etc.  The expensive lab equipment would not qualify as a supply because it has a useful life of greater than a year and is subject to the allowance for depreciation. However, the disposable laboratory supplies may qualify because they are tangible property that is used in the conduct of qualifying research and does not have a useful life of greater than a year.

       

      If Acme did not develop drugs and instead developed software, their supplies would be quite limited. Computers and office equipment would have a useful life greater than one year and thus, would not count as qualified research expenses. In this case, R&D will typically be labor related expenses (wages and contract research).  

       

      Qualified Supply Expenses are expenses used to conduct qualified research. Per IRS guidelines, these supplies must fit into the following criteria:

      1. Must be tangible property (other than land or improvements to land)
      2. The supply must be subject to depreciation 

       

      For example, these supplies would qualify:

      • Materials for prototyping* (ie. 3D printer Filament)
      • Lab Supplies (as long as they are not used for production)

       

      These supplies would not qualify:

      • Land or Improvements to land
      • Non-tangible expenses (license, leases, rental costs, travel expenses, etc.)
      • Supplies used for general & administrative purposes