What expenses qualify for the R&D credit?

Qualifying expenses for the R&D credit include:

1. Wages - Box 1 W-2 wages paid to internal employees for directly performing, supervising, or supporting qualified research.
2. Supplies - any tangible property used or consumed in the active conduct of R&D activities.  Qualifying supplies do not include land or improvements to land, and depreciable property. 
3. Contract research - expenses paid to third parties for qualifying research.  These expenses are eligible for inclusion at a rate of 65%. 

In certain cases, cloud computing expenses incurred by taxpayers developing software may qualify as well.