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Below we have included some of the questions that many of our customers have. If you have questions that weren’t answered on this page, contact us and we’ll be happy to answer them for you. We value your experience. Reach out to us today!
The good news is that most businesses or healthcare practices don’t realize where they could be receiving credit for their ideas and improvements. During our discovery step, more times than not, we give our clients great news about money spent that qualifies under IRS code.
Simple questions to ask yourself:
- Do you devote time, resources, and key personnel to creating new or innovative products or processes, or to improving existing products?
- Do you develop patents, prototypes, or software?
- Do you hire engineers, designers, or scientists to help in your research?
If you answered ‘yes’ to the questions above, you may qualify for dollar-for-dollar savings.
It’s a dollar-for-dollar tax savings that directly reduces a company’s tax liability. There’s no limitation on the amount of expenses and credit that can be claimed each year. If the federal R&D credit can’t be used immediately or completely, then any unused credit can be carried back one year or carried forward for up to 20 years. Each state has its own carryover rules.
The R&D tax credit regularly provides a wide range of businesses with extra cash—up to 10% of annual R&D costs for federal purposes and much more when state credits are factored in.
Taxpayers claiming the R&D tax credit must retain proper documentation, including contemporaneous books and records, to substantiate eligible qualified research expenditures.
Examples of contemporaneous documentation include these items:
- Payroll records
- General ledger expense detail
- Project lists
- Project notes
- Lab results
- Emails and other documents a company produces throughout the regular course of business
To simplify the process, we will work with you and your accounting team to obtain this documentation during our Discovery and Compilation Stage. In the event that it’s needed, we will have the contemporaneous documentation to back your study.
It’s not only high-tech or life sciences companies with dedicated research departments that qualify for the R&D tax credit. Indeed, most companies don’t have R&D laboratories and instead perform R&D in their test kitchens or fields, wineries or distilleries, or on production floors. Wherever experimentation occurs, R&D may be found.
Historically, many companies performing R&D haven’t benefited fully from the credit because the company—or its shareholders, in the case of pass-through entities—were subject to the alternative minimum tax (AMT).
For tax years beginning on or after January 1, 2016, individuals or eligible small businesses (ESBs) who are subject to AMT can offset regular taxes and AMT using the R&D tax credit. ESBs are non-publicly traded companies with average revenue of $50 million or less over the previous three years.
This means R&D credits that may have been previously unusable for ESBs can now be applied to reduce AMT.
After 2021, companies will no longer be able to immediately expense costs that are treated as specified IRC Section 174 research expenses. Instead, they’ll be required to charge US-based research expenses to a capital account and deduct them over a five-year period. Expenses incurred for research performed outside of the United States will be charged to a capital account and deducted over a 15-year period.
Time is of the essence, as now is a particularly good time to revisit the tax credit.
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