R&D Tax Credits for the Dental Industry
Recently, dental practices have been discussing eligibility to claim the Research and Development Tax Credit (R&D Credit). Though manufacturing companies, software developers, and engineering firms primarily claim the R&D Credit, the IRS definition of R&D is not exclusive to these industries. As long as taxpayers’ projects meet the criteria found in Section 41 of the tax code—which outlines criteria to receive credit for research activities—they are able to claim qualified expenses associated with those projects.
Taxpayers who specialize in developing new or improved dental devices, materials, scanning technologies, procedures, or manufacturing processes have a strong opportunity to claim the R&D Credit. In most instances, general dental practitioners do not qualify for the R&D Credit, as they normally do not satisfy the “technical uncertainty” and “process of experimentation” tests defined in Section 41. In order to qualify, taxpayers in the dental industry must be actively developing new technologies or techniques, not just utilizing or implementing them. Dental specialists, like periodontists or prosthodontists, may be able to claim the R&D Credit for some of their more unique or challenging cases, but even then, those specialists will need to make a strong argument that a true process of experimentation exists in their efforts.
If certain challenging cases do meet the R&D Credit criteria, the taxpayer will also need to have a system in place to capture the costs associated with these procedures, so they can differentiate these costs from their standard care expenses. Even if certain projects are Section 41-eligible, it is likely these costs will be small relative to the entire dental practice, limiting the opportunity to realize significant R&D Credit benefit.
Please contact your McGuire Sponsel representative if you have any questions.