Supplies
- Supplies are tangible property used and consumed in the research, not land, not depreciable property, and not general supplies.
- Provide both the invoices and the usage records: job sheets, bills of materials or issue records that tie a purchase to a prototype build or a test.
- Exclude production stock, tooling with a life beyond the project, and anything that became part of a product sold.
Contract research
- Sixty-five percent of amounts paid to a third party for qualified research counts, as configured for the track.
- The taxpayer must bear the economic risk: payment not contingent on success.
- The taxpayer must retain substantial rights in the results. The contract decides this; practical use without an express right is a weak position.
- Provide the signed contract or SOW, any master agreement, invoices and payment records.
Funded research
Research funded by a customer or grant, where the taxpayer does not bear the risk or keep the rights, is excluded. The same contract terms answer this question in reverse.
Do not assume
Note.Not every supplier cost qualifies, and the contract-research percentage applies only to amounts for qualified research. The mock audit rates what the contract shows; it does not assume.