R&D Tax Credits
Research and Development Tax Incentives
“With the current economy, it is ever more important for businesses to explore every avenue of tax savings, and with more than 7,000 federal and state tax credits and incentives available, failing to pursue them aggressively simply doesn’t make sense.”
—Les Bryson, R & D Magazine, 2/2010
If your company has invested time, money and resources to the advancement and improvement of your company’s product or processes, then you likely qualify for the Federal R&D Tax Credit Incentive Program. However, many firms are unaware of how or even what to qualify; thus, the opportunity goes unclaimed.
The R&D Tax Credit Opportunity
- A hidden and immediate source of cash for many small and mid-size companies;
- A significant reduction to current and future year’s federal and state tax liabilities;
- Over $5 Billion in federal R&D tax credit benefits are given out annually;
- Approximately 80% of the $5 Billion goes to a few of the nation’s largest companies;
- Every successful company is potentially eligible for an R&D tax credit of some amount;
- Many companies are unaware their day-to-day operations can qualify;
- The 20% research tax credit is not a deduction. It’s an actual dollar-for-dollar credit against taxes owed or taxes paid. Plus the taxpayer may be able to expense all such costs in the year incurred.
- A business can take the credit for all open tax years – generally the last three, or four years plus the current year;
- Additional years may be available if taxpayer is in a net operating loss or alternative minimum tax position;
- Tax credits may carry forward 20 years;
Advocates For Savings will provide a free consultation and feasibility report to determine the cash benefit before moving forward. The fee charged upon initiating the project is dependent upon the size and scope of the project.
Frequently asked Questions
Why should my business conduct an R&D Study now?
The U.S. offers some of the world’s richest R&D tax incentives, but chances are you’re not taking advantage of them and getting the cash you deserve. As the pace of your business accelerates and competition increases, you may be more likely to overlook this source of cash because you lack the time, resources or expertise needed to identify and manage R&D tax credit claims.
Prior to December 2001, the requirements necessary to qualify for the R&D tax credit were rather difficult to obtain. However, in December 2001, the Bush administration issued IRS regulations which made it significantly easier to qualify for the R&D tax credit.
The new regulations are in harmony with the intent of Congress and are much more taxpayer friendly. They reflect a profound change in the position of the IRS. The new regulations make it:
- Easier for a broader array of companies to qualify their activities as R&D
- They provide greater flexibility in certain record keeping requirements.
- They significantly expand the definition of internal-use software characteristics.
What qualifies as R&D?
Many taxpayers tend to regard “R&D” as an activity associated solely with high-tech, biotech and pharmaceutical type companies. We have found many of our clients tend to regard their own efforts to make new, lighter, stronger, less expensive, more reliable products, or to make more precise, more economical and more versatile processes as “just doing my job”, when in fact they have been performing R&D qualifying activities all along.
If your Company is involved in any of the following activities, you may be able to claim the R&D tax credit:
- Manufacture products
- Designing tools, jigs, molds and dies
- Certification testing
- Trying new materials
- Adding new equipment
- Developing or improving production/manufacturing processes
- Improving or building new manufacturing facilities
- Automate internal processes
- Developing prototypes or models (including computer generated models)
- Paying consultants/contractors to do any of the above stated activities
Who you hire matters
Navigating the R&D Tax Credit complexity and uncertainty is no simple matter. Advocates For Savings team of experts utilizes a comprehensive approach in both quantifying and qualifying credit amounts, which is the recommended approach by the IRS (Project by Project approach) Thus, for example, instead of identifying and documenting only 3-5 of the biggest projects conducted by a client in prior year, Advocates identifies EVERY qualifying activity and ties it too every employee, time and wages and the corresponding sections of the code and appropriate legal documentation that substantiates the credit.
It is important to consider recent IRS requirements for R&D credits. Advocates include the basic computations and work papers with the study reports we deliver to our clients.
Our team of experts includes Engineers, Tax and IP Attorneys, from a variety of disciplines who have extensive experience on performing R&D studies of various industries.
The result is that we can maximize the credits and most importantly defend the credits. As the IRS Agents reviewing the R&D Credit are also engineers, it is critical that the client has experienced engineers on their side to defend the credit.
Remember, we will provide you with a free consultation and feasibility report to determine the cash benefit before moving forward.
You don’t pay unless you initiate the project after reviewing our feasibility report.