The R&D Tax Aspects of the Internet of Residential Things
The Internet of Things is here. The once
futuristic notion of a fully connected world is no longer mere
imagination. On the contrary, the virtual world and the real
world are increasingly intertwined. The unprecedented
multiplication of smart devices has enabled a myriad of
innovative IoT applications, which have impacted the way we
monitor, manage, and control things.
One of the most promising fields for the IoT revolution is
home automation. A growing number of companies are engaged in
developing web-connected household appliances capable of
intelligently interacting with the physical world. The
Internet of residential things brings a major R&D tax
credit opportunity for such companies.
The Research &
Development Tax Credit
Enacted in 1981, the federal Research and Development
(R&D) Tax Credit allows a credit of up to 13% of eligible
spending for new and improved products and processes.
Qualified research must meet the following four criteria:
On December 18, 2015 President Obama signed the bill making
the R&D Tax Credit permanent. Beginning in 2016, the
R&D credit can be used to offset Alternative Minimum tax
and startup businesses can utilize the credit against $250,000
per year in payroll taxes.
- New or improved products,
processes, or software
- Technological in nature
- Elimination of Uncertainty
- Process of Elimination
The Internet of
The IoT can be defined as “the use of
sensors, actuators, and data communication technology built
into physical objects that enable those objects to be tracked,
coordinated, or controlled across a data network or the
Internet”. In other words, it constitutes a scenario
where the physical world becomes a type of information system.
In the IoT, objects have the ability to sense and communicate
and therefore become strategic tools for collecting
information and responding to it. IoT residential
applications encompass the remote and automated management of
appliances, systems, and even entire homes.
The massive growth of residential IoT applications has
increased convenience, comfort, efficiency, and security.
Innovative examples include:
Connecticut-based iDevices’ iGrill2, a Bluetooth smart
connected grilling thermometer that enables the monitoring of
up to four temperatures via a companion app, which also
informs the precise grilling time to avoid overcooking.
Wireless multi-room speaker products, such as Sonos and
Samsung M5 and M7, are also examples of smart devices.
Controllable via mobile applications, they allow users to
stream music directly from their phones.
Created by Boston-based Mimo Babies, the Mimo smart baby
monitor also illustrates how the IoT can enhance convenience
at home. Mimo’s organic cotton kimono is fitted with
non-contact, machine washable sensors that measure a baby’s
respiration, skin temperature, body position, and activity
level. The Mimo app allows parents to see the baby’s data in
real-time, set alerts in case of changes, and view trends and
analytics about the infant’s sleep. Mimo is also enabled with
a microphone, which streams the baby’s sounds to the user’s
smartphone in real-time.
The IoT also contributes to enhanced efficiency. Savings in
utility bills are a particularly interesting example. The
innovative Sonte Film, for instance, is the first ever Wi-Fi
enabled digital shade that can be controlled via mobile
devices. The digital shade technology changes the color of the
film from transparent to non-transparent, limiting the amount
of light getting into a particular room. Sonte’s Smart Film
can be applied onto existing windows, becoming a strategic
tool to reduce unwanted heat in the warm summer months.
Even non-smart devices can enter the IoT and become
significantly more efficient. Located in San Francisco,
crowdfunded startup Zuli is the creator of a smart switch, a
small device that plugs into existing outlets and enables
users to control plug-in lighting and other appliances using
an iOS application. With the slogan “your home at your
fingertips”, the innovative system offers dimming, motion
sensing, scheduling, and energy monitoring capabilities.
Security is yet another important field for IoT applications.
2014 CES Innovations Design and Engineering Award Nominee,
California-based SkyBell is the creator of a Wi-Fi doorbell
that enables users to see, hear, and speak to whomever is at
their doors right from their smartphones.
Created by a San Francisco-based startup, August Smart Lock
can also enhance security by offering an innovative and
keyless way to manage access to homes.
Through encrypted locking technology, the system communicates
with authorized smartphones and unlocks automatically.
Virtual keys can be sent to multiple devices and have
different configurations – while a family member would have a
24/7 authorization, a cleaning person would get a key that
works only for a few hours. In addition, the smart lock keeps
record of all the activity, which can be accessed through a
Google, Nest Labs, and
Smart Air Conditioners
Recently acquired by Google for $3.2
billion, Nest Labs is a pioneer in the Internet of residential
things. The California-based home automation company developed
Nest Learning Thermostat, a sensor-driven, Wi-Fi enabled,
self-learning, programmable thermostat whose estimated sales
have reached 100,000 units a month.
Nest thermostat’s ability to “learn” its users’ habits, such
as the time one leaves and returns home, and set the
temperature accordingly is a striking illustration of
industrial design innovation leading to enhanced functionality
and improved end user connection. This cutting-edge solution
undoubtedly demonstrates the bourgeoning of IoT residential
The deal was the second biggest in Google’s history, after the
$12.5 billion acquisition of Motorola. Google’s interest in
Nest Labs signals the ongoing multiplication of web-connected
household appliances, which will represent an important share
of the expected $600 billion IoT market in 2025.
Enabled with smart sensors that process information and pick
up on patterns, these innovative products are poised to be
major sources of data. Access to the so-called “Big Data” has
gained unprecedented importance, especially for
information-driven agents, such as Google. Specialists have
seen the billionaire acquisition of Nest Labs as a strategic
move to strengthen the company’s presence in urban households
and gain a firm footing in the growing market of the Internet
of residential things.
On June 20th, Google’s Nest Labs announced the acquisition of
Dropcam, a video-monitoring and security startup based in San
Francisco. Dropcam’s Internet-connected home security service
offers real-time streaming of video content to mobile devices
as well as a cloud recording capability that stores up to a
month of video online. The innovative system offers zooming,
night vision, two-way talks via built-in microphones and
speakers, and intelligent alerts for motion and sound
activities. The $555 million deal signals Google’s continued
interest in home automation and adds a new dimension to Nest’s
Nest Thermostat has opened the way for other innovative
solutions for smart temperature control. General Electrics,
for instance, partnered with New York City invention company
Quirky to develop a smart window air conditioner. Denominated
Aros, the A/C is capable of learning from its owner’s budget,
location, schedule, and usage to automatically maintain the
perfect temperature and maximize savings.
Additionally, it can be monitored, programmed, and controlled
from anywhere using the Wink app for mobile devices. One of
Aros’s most innovative features is its ability to respond to
the user’s smartphone’s GPS settings, turning off when one
leaves home and guaranteeing a comfortable temperature when he
LED Sensor Networks
According to McKinsey & Company, the
value-based LED market share in general lighting for 2011 was
estimated at around 8 percent in North America. This figure is
expected to grow to nearly 45 percent in 2016 and 70 percent
by 2020. When integrated to the IoT, LED lighting
infrastructure becomes smart multiservice platforms and
strategic data-gathering tools.
Recently created innovative systems have transformed light
fixtures into networked, sensor-equipped, solid-state, smart
devices capable of capturing and transmitting sensory data
about the surrounding environment. Such systems make
each fixture a node in a broadband network, which can be used
for a wide range of applications.
This innovation enables lighting owners to capitalize on the
LED conversion process, amplifying its benefits beyond
reductions in energy and maintenance costs. Philips’s
recently launched Hue lux is an interesting example of smart
lighting solution. The bright-white LED bulbs can be
controlled via smartphone or tablet and feature outstanding
digital dimming capabilities.
Potential applications for LED sensor networks in residential
settings are numerous. Enabled with sensors, smart lighting
solutions can go beyond dimming capabilities and feature
non-lighting-related functionality. LED lighting
infrastructure can become the basis for smart security
systems, environment sensing (temperature, humidity, etc.),
and audio sensing, among many other applications.
Smart Home Hubs
Most of the
residential IoT technology currently available focuses on the
control of individual appliances or systems. Each solution
carries different companion apps, network protocol
definitions, and security mechanisms. In this very fragmented
market, a growing number of companies are engaged in the
development smart home hubs, aimed at streamlining
communication and control of multiple smart devices.
announced the global launch of its Smart Home service,
designed to make home automation “effortless and easy” through
a single app that simultaneously connects and controls
multiple household appliances. With a simple command such as
saying “Good Night”, users can automatically turn off multiple
devices, such as TVs, smart bulbs, and air conditioners. In
addition, people can remotely manage their devices via
While the service
will be initially restricted to Korea and the U.S., Samsung
plans to expand both the geographic scope and the capabilities
of the Smart Home. One project consists in linking Samsung
Gear Fit, a wearable fitness solution, to the home automation
of Samsung Smart Home:
Apple has also been working on a smart home solution. The
so-called HomeKit is expected to turn iPhones into remote
controls for the Internet of residential things. Rather than a
new app, the innovative iOS 8 feature will be integrated with
Siri, meaning that it will work through voice commands. Users
will be able to control individual smart home devices as well
as groups of items, such as all the appliances in one room or
all the lighting in one floor.
Initial partners include August Smart Lock, Philips Hue
Personal Wireless Lighting, Honeywell Thermostat, iHome
Speakers, and the manufacturer of semiconductors Texas
Instruments. Apple’s attempt to enter the smart home market
capitalizes on the necessity of overcoming long-standing
compatibility issues, which have crippled the functionality of
smart homes. The idea is to use one of the most popular phones
in the market to introduce a new framework through which smart
devices will work together. In other words, Apple wants to be
the thread that connects appliances and devices in our smart
One of the most popular hubs currently available was created
by Colorado-based startup Revolv. Self-described as the most
powerful, compatible smart home hub in the market, Revolv
allows users to harmonize smart devices, unifying them in one
app and allowing them to communicate with each other
SmartThings, Vivint, and iControl are other examples of
companies offering innovative smart home hubs that promise an
effective, unified approach to the Internet of residential
Home automation promises to make our lives
easier and more connected than ever before. The multiplication
of innovative smart devices as well as the attempts to unify
them under new smart home frameworks creates a major R&D
tax credit opportunity for IoT companies.