Empower Your Innovation with the R&D Tax Credit
Get expert guidance to unlock federal and state tax credits for innovation. Save big while driving growth.
Are You Eligible for R&D Tax Credits?
R&D tax credits aren’t just for tech companies or groundbreaking discoveries. Businesses in manufacturing, engineering, software development, and biotechnology may already qualify without realizing it.
Examples of Qualifying Activities:
- Product Development: Creating new products or improving existing ones.
- Process Innovation: Streamlining production processes to enhance efficiency.
- Software Enhancements: Developing or upgrading internal-use or client-facing software.
- Material Testing: Experimenting with alternative materials to reduce costs or improve quality.
The IRS Four-Part Test
To qualify, your activities must meet these criteria:
- Permitted Purpose: Must relate to creating or improving a product or process.
- Technological in Nature: Must rely on engineering, computer science, or other hard sciences.
- Elimination of Uncertainty: Aim to resolve technical challenges.
- Process of Experimentation: Use trial and error to evaluate alternatives.
Maximizing Your R&D Tax Credits
R&D Tax Credits are a general business tax credit under Internal Revenue Code Section 41, meant to yield billions of dollars in benefits to companies engaged in qualified research. Thousands of companies take advantage of the credit across almost every industry. Are you?
“Given deep ties to the startup community, entrepreneurs, and growth companies in general, we found it necessary to bring the same level of service and expertise to R&D Tax Credits. After a long search and working with many of the top names in the industry, we decided that none stood up to our exceedingly high standards. In alignment with our ongoing commitment to remaining the highest quality service in the marketplace, we now offer our services, previously reserved only for our own clients, to the public.”
What Are R&D Tax Credits?
The R&D Tax Credit is a general business tax credit that provides a dollar-for-dollar offset against tax owed or previously paid. Eligible taxpayers may derive a credit in any open tax year and may amend a previously filed return to claim a tax credit against any tax previously paid in that year as well. The federal R&D Tax Credit can be carried back one year and forward for up to twenty years to applied at any point where the business may have tax owed. Today, there are 37 states in the U.S. that also offer an R&D Tax Credit.
Enacted in 1981, this incentive has proven to be very valuable over the years, yielding in excess of $14 billion dollars annually in benefits to companies engaging in research and development activities. Despite this, still fewer than 10% of eligible businesses are taking advantage of the credit. There are many companies that qualify for these benefits, including companies in the fields of engineering, software development, manufacturing and fabrication, the automobile industry, life sciences, food science, machining, aerospace and defense, along with many others.
If your business is not currently taking advantage of the R&D Tax Credit, reach out and ask us why! We can quickly help you determine whether your business should be claiming this very effective tax credit.
Why do you need an R&D Tax Credit specialist by your side?
As with many aspects of tax accounting, the complexities involved in accurately calculating the R&D Tax Credit require the assistance of experts specializing in the nuances surrounding eligibility requirements, product and service development processes, the creation of the financial model, and documentation requirements. Answering questions such as ‘does this project qualify? Have I maintained sufficient documentation of the activities and costs? Am I managing my R&D programs to maximize the value of the credit for my business?
At Origins Group, we bring to bear expertise from some of the most experienced and respected accounting, tax, finance, & consulting professionals in the industry to place our clients in the best possible position to get maximum return from their R&D activities. We view every client relationship like a partnership and are committed to providing close, personal attention to our clients. We also make sure our clients are prepared in the case they are ever targeted by the IRS for an audit.
History of the R&D Tax Credit
The R&D Tax Credit was first introduced through the Economic Recovery Tax Act of 1981. This act was an economic stimulus meant to encourage investment in US businesses. The government decided that research spending greatly benefited the economic growth of the country. The credit was not initially made permanent and has required renewal by Congress at various intervals over the years until finally being made permanent in 2015 as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015. The PATH Act also broadened the impact of the credit for many small to mid-sized businesses by allowing the credit to offset alternative minimum tax and the FICA employer portion of payroll tax as well. Each of these new benefits are subject to limitations and requirements so please reach out to us for more information on how these benefits may apply to your business.
What kinds of business activities and expenses qualify for an R&D Tax Credit?
There are many activities and expenses that may be eligible for an R&D Tax Credit! Any work involving the development of new or improved products, processes, techniques, formulas, software applications, inventions, production methods, or similar that relate to function, performance, reliability, or quality should be assessed for potential eligibility.
Likewise, there are many expenses associated with these eligible activities that serve as the basis for calculating the R&D Tax Credit. These include salaries, legal fees, US-based contractor fees, supplies, patents, molds, dies, design tools, environmental testing and inspections, and software development, to name a few. Contact us to learn about all the different expenses that your business qualifies for.
What makes R&D Tax Credits Complicated?
R&D Tax Credits are complicated because of the nuanced nature of the requirements and how projects or business are assessed against those requirements. Tax guidelines referencing requirements and exceptions to project eligibility, establishing employee activity nexus, documentation requirements, establishing required levels of uncertainty and use of technological methods for iterative development are just a few examples of the many complex elements of the R&D Tax Credit analysis. Very often companies not only need but benefit financially from engaging professional help from qualified R&D Tax Credit experts to determine if their projects constitute ‘Qualified Research’ in the context of the credit requirements. A qualified R&D Tax Credit expert will also help their clients evaluate their work within the framework of those to provide more clarity on the matter and ensure maximum allowable benefit is claimed through the R&D Tax Credit.
The R&D Tax Credit is also subject to regular modifications to its various requirements through regulatory rule making, and common law action through the tax courts must be taken into consideration as well. Often the only way to ensure your business is maximizing return while also complying with the current guidelines and requirements is by using a reputable R&D Tax Credit expert.
Ready for a next-generation accounting firm?
Join thousands of other satisfied clients and experience the difference for yourself.
Contact Origins Group today to get started building your future.
