Recently, the federal Research & Experimentation Tax Credit was renewed for 2006 and 2007. And when legislators renewed it, they also changed the rules so the credit will apply to more companies. The credit was created to fight a steady decline in privately funded R&D. But the rules were complicated and businesses needed significant history and spending thresholds to qualify. That shut out a lot of companies.

Now, firms can use an alternative simplified credit. You add up your past three years of qualified research expenditures—a wide range of expenses are eligible—and divide by two to get a baseline figure. A 12% credit applies for any spending above that baseline. Firms that don’t have expenses in all three previous tax years can still take a 6% credit.

As for what’s covered, wages (for employees or outside contractors), the cost of supplies and equipment, the costs of supervising the R&E activity or directly supporting it, are all included. If your firm contributes to a research consortia group, those payments qualify too.
 
Historically, the lion’s share of R&E credits have gone to tech firms, but it’s intended for every company. Businesses as diverse as food services, furniture manufacturing, finance and health care services are increasingly leveraging the credit.