Short answer: The R&D tax credit in the Inland Empire can cover work where a business develops or improves a product or process and has to experiment, such as new tooling, fixtures or a reformulated food product. The work must meet all four IRS tests, and California has a separate credit. Our partner team specializes in R&D credit work.
Not just for labs
Most owners hear "research and development" and think of software companies or biotech. The federal research credit is wider than that. It can cover work where a business tries to develop or improve a product or a process and has to experiment to get there.
In the Inland Empire, that often looks like a machine shop working out tooling for a new part, a fabricator designing a custom fixture, a food processor reformulating a product for shelf life, or a packaging line being reworked to run a new size.
The four-part test, in plain words
The IRS uses four tests, and the work has to meet all four:
- Permitted purpose: the work aims at a new or better product, process, formula, software or technique
- Technological in nature: it relies on engineering, physics, chemistry, biology or computer science
- Elimination of uncertainty: at the start, you did not know how to do it, or the best way to do it
- Process of experimentation: you tried alternatives, tested them and evaluated the results
This is a summary, not tax advice. Whether your work qualifies depends on the facts and your tax advisor's review.
What kinds of work to look at
Routine work does not count: normal quality control, fixing a known problem the known way, or making the same product the same way. The question is whether you had to experiment to find the answer.
- Designing new tooling, jigs or fixtures to make a part
- Changing a process to cut scrap, cycle time or energy use when the fix was not obvious
- Developing or reformulating a food or beverage product and testing it
- Building custom equipment or automation for a production line
- Writing software to run machines, inventory or quality checks
California has its own credit
California offers a separate research credit, claimed on Form FTB 3523. It is based on the federal credit with changes, and the research has to be done in California. A shop in Fontana or a plant in Riverside doing qualifying work may be able to look at both.
Why bookkeeping comes first
R&D credits are built from records: wages of the people who did the work, supplies used in testing, and contract research costs. If payroll is not tied to the books and supplies are coded to one big "materials" account, those costs are hard to support.
That is where we start. Clean, reconciled books with wages and supplies coded so they can be traced. Our partner team specializes in R&D credit work and can review whether your activities qualify.
A payroll tax option for some young companies
Certain small businesses can elect to apply part of the federal research credit against payroll taxes instead of income tax. That matters for a company that is growing but not yet showing taxable profit. The rules on who qualifies are specific, so ask your tax advisor.
Where we work
We keep books for businesses across Riverside County and San Bernardino County.
- Chino
- Corona
- Fontana
- Moreno Valley
- Murrieta
- Ontario
- Rancho Cucamonga
- Redlands
- Riverside
- San Bernardino
- Temecula
- Upland
Questions
Does my shop really qualify?
Maybe. It depends on the work, not the industry. A short call is enough to see if it is worth a closer look.
Do I need special records?
Payroll, supply purchases and some record of the projects and the testing done. Clean books make the rest much easier.
Will this replace my CPA?
No. Your CPA still files your return. The credit work is coordinated with them.
Can past years be looked at?
Sometimes. Whether earlier years can be claimed depends on tax rules and filing deadlines, so your tax advisor decides.