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.
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.
To develop a new or improved business component including product, process, software, technique, invention, or formula to enhance functionality, performance, reliability, or quality.
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.
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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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.
The definition of qualified activities is pretty broad. Because of this, there is no cookie cutter industry or company profile that determines eligibility. 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.
The credit is generally worth 10% of your qualified expenditures such as wages, contractors, hosting and infrastructure, and supplies.
The R&D tax credit is designed to lower a company’s tax liability. For established businesses, it is used as a direct dollar-for-dollar reduction of your income tax liability.
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.
Yes! These credits have a 20 year carry forward period to be used against future income tax liabilities.
You claim this credit by filing an additional tax form along with your company’s annual tax filing. Occams will prepare the necessary additional tax forms for you, and you will provide them to your CPA to be filed alongside your annual filing.
You can amend previous tax returns to claim any unclaimed credits. Based on the statute of limitations for amending previous returns, you can go back up to 3 years to claim the R&D credit.
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.
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.
No. This credit can be claimed for every year in which you incur R&D expenses. There is no limit to the number of times you can claim this credit, and there is no cap on the amount.
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.
As long as your filing does not contain errors, you are guaranteed to receive a credit based on the expenses you claimed. However, the IRS may request documentation to prove that your expenses meet the criteria for qualified research. This is what we’re building during our process.
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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Before you go, remember that our tax experts are here to help your business seize all the benefits that ERC and R&D tax credits have to offer. Leverage our expertise to navigate the complexities and maximize your savings.Book Free Consultation