Research & Development Tax Credit
The R&D credit does the following:
- Reduces your federal and state tax liabilities for the current year as well as future years
- Lowers your business’s effective tax rate
- Allows you to keep more of your profits
- Small businesses can use the R&D credit to offset the FICA portion of payroll taxes.
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What if you could save thousands of dollars in taxes – all thanks to the work you’re already doing? Through R&D tax credits, you can.
Are You Eligible?
Do you need to be a scientist to be eligible for R&D tax credit? NO
R&D tax credits are available to all organizations that engage in certain activities. Opportunities also exist in industries that are not known for conducting R&D activities like Software development, Agriculture, Architecture, Construction, and Engineering, Restaurants, Retail.
If you are conducting qualified research and development projects, it is beneficial to claim the R&D tax credit regardless of your company’s taxable income. R&D tax credits can be carried forward to offset future income tax liability. Typically, credits that cannot be used immediately will carry forward for up to 20 years. Also, companies can often claim the R&D tax credit retroactively by filing amended returns.
Examples of R&D activities include but are not limited to the following:
- Developing or engineering a new or improved product, process, formula, or software
- Evaluating the feasibility of a product, process,
formula, or software
- Developing engineering architecture
- Developing experimental models & prototypes
- Testing an experimental product, process,
formula, or software
- Beta testing
- Improving processes or the manufacturability
of a product
- Technical design reviews
- Participating in technical meetings
- Documenting the results of research
- Maintaining research equipment
- Compiling research data
- Fabricating experimental models
- Experimenting with innovative technologies
- Creating more efficient and environmentally
- Supervising technical personnel engaged in R&D
R&D Tax Credit Criteria
To develop a new or improved business component including product, process, software, technique, invention, or formula to enhance functionality, performance, reliability, or quality.
Technological in nature
The business component’s development must be based on a hard science, such as computer science, engineering, biological sciences, or the physical sciences, including testing, developing models, software, patents, or prototypes.
From the outset, the organization must have faced technological technical uncertainty when designing or developing the business component. For example, this technical uncertainty can be related to the capability or methodology of the development or improvement, or the appropriateness of the design.
Process of experimentation
The company must have evaluated multiple design alternatives or employed a systematic trial and error approach to overcome the technological uncertainties.
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Claiming the R&D tax credit could become easier by maintaining proper documentation.
Learn what documents you will need to get the claim.
- Payroll information and timesheets for employees directly involved in R&D and for employees or managers supervising them
- General ledger reports listing which business expenses and supplies were related to R&D
- Copies of contracts and invoices paid to any contractors who do third-party research for you
- Timekeeping records for work plans, payroll, meetings, and any other activities to prove they were related to R&D
- Design drawings, test records, blueprints, progress reports, marketing materials and any other documentation that shows the process and impact of your research
FREE LEADING INSIGHTS ON
R&D TAX CREDIT
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What is the R&D tax credit?
Established in 1981, this incentive rewards US-businesses for investing in research and development (R&D) activities. This incentive lowers the income tax liability for businesses that develop new or improve existing products, processes, software, or formulas.
How do I know if I qualify?
If you have developed a product, process, software, or formula that relies on either physical, biological, engineering, or computer science, it’s very likely you qualify.
How much is it worth?
How do I use this credit?
If you’re a startup, you may have the option to use this credit against the employer’s portion of social security taxes up to $250,000 per year. To be eligible as a qualified startup, you must be within your first five years of gross receipt, and be under $5 million in gross receipts for the tax year in consideration.
I won’t have an income tax liability for this year. Is it still worth it to claim this credit?
How do I claim this credit?
I’ve never claimed this credit before. Can I go back and claim for previous years?
In doing so, you may potentially get a refund based on income taxes you paid in those years, or you can carry forward those credits to future years.
I already have a CPA. Is this something they can do for me?
Great! We partner with hundreds of CPAs to help their clients claim these tax incentives. We find this to be a bit of a specialty service – think of your CPA as a general practitioner, and Occams as a cardiologist.
Occams does not file any forms on your behalf – we prepare all the necessary forms to be included with your annual filing. In this case, you would pass along our work to your CPA, and we’ll work with them as needed to make sure everything gets done accordingly.
Is this a one-time thing?
What is the process to claim the credit?
There are two important parts to an R&D tax credit study: substantiation and calculation. Our team of experts will help you build the case for why you qualified for the R&D credit (substantiation), and work with you build the financial framework to calculate your credit. We try to take on most of the heavy lifting so you don’t have to. The timeline varies from company to company, but traditionally a study takes about 3-4 weeks.
What do I do if I get audited?
We make sure your R&D claim is bulletproof. Even if the IRS disagrees with the amount of your credit, they won’t charge you penalties or interest, just the difference in calculation.
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Did You Know?
R&D Tax Credit reduces your federal and state tax liabilities for the current year as well as future years.