Research & Development Tax Credit: It Pays To Be Innovative

Congratulations, you may qualify! The R&D tax credit applies to activities the IRS considers “research and development,” which is more prevalent than you might think. Laboratories and high technology firms are obvious candidates, but did you know that architectural, engineering, software, wineries, breweries and many manufacturing companies are also eligible?

Every day, your business is taking a risk. Whether you’re researching a new drug, creating a mobile app, refining a mold or building a skyscraper, you’re doing more than just running a business. You’re taking a leap of faith that doesn’t guarantee you’ll get paid for your hard work. That’s why the Research & Development (R&D) tax credit exists.

The R&D Tax Credit provides a dollar-for-dollar reduction in tax liability. It is one of the largest and most valuable tax credits available. There are no caps, no application fees, and no restrictions on how you can use your credit.

HOW MUCH IS THE R&D TAX CREDIT WORTH?

The size of the R&D tax credit varies greatly because it depends on the amount of R&D activity that can be quantified. An analysis of our client base shows that the average size of the federal R&D tax credit in one year is approximately 1% of a company’s annual revenues. However, credits can be claimed retroactively for up to three years and 36 states provide an additional R&D credit.

KEY BENEFITS

• A hidden and immediate source of cash, credit average is over $50,000 per $1,000,000 in total company payroll.
• Creates a significant reduction to current and future years federal and state tax liabilities.
• Is not a deduction; it is an actual dollar-for-dollar credit against taxes owed or taxes paid. Additionally, the taxpayer may be able to expense all such qualifying R&D costs in the year incurred.
• Tax credits may carry forward 20 years.
• A business can take the credit for all open tax years, generally the last three or four years plus the current year.

THE FOUR PART TEST

Detailed Analysis Of Your Business

Determining whether a business activity qualifies for R&D is based on a broad set of definitions known as “The Four Part Test.” This is a subjective analysis that is open to interpretation, which is why so many different types of businesses qualify for the R&D tax credit. It is our job to substantiate, document and prove that some portion of your business activity involves R&D.

QUALIFIED RESEARCH EXPENSES (QRE)

QRE is any eligible expenses for the credit, including wages, supplies and contract research expenditures. For most companies, full-time product development engineers’ wages come to mind first and are easiest to recognize; however, a closer look at definitions and examples may lead to the inclusion of additional wages, supplies or contract research.

Examples of Qualifying Activities Include But Not Limited To:

• Programming CNC machines
• Quality assurance – First-piece quality inspections
• New or improved products, designs, equipment and manufacturing process
• Development of a new or improved prototypes
• Design and evaluation of alternative methods aimed at improving cost-effectiveness and product performance.
• Development of synthetic body parts
• Designing the process to fabricate the metal to reduce shrinkage and increase its quality
• 3D CAD Engineering with programs like SolidWorks
• Developing and testing of prototypes
• Designing and developing of specialty tooling and fixtures
• Considering alternative metals to develop the product
• Considering different metal thicknesses
• Developing engineering drawings
• Developing weld procedures
• Bending of metal (e.g. sheet metal) has to consider the stressing and stretching
• Considering strength of final product for application (meets specifications)
• And many more...

OUR METHODOLOGY

Our R&D Tax Credit service if one of four flagship services making up our Specialized Tax Incentives. We utilize a team of highly qualified professionals including IP attorneys with engineering backgrounds that adhere to the comprehensive project by project approach methodology as required by the IRS. By following this methodology, we qualify every applicable employee, activity, hours spent and corresponding wage period to maximize the incentive for our clients.

Already claiming a credit? Our experts can review your credits and documentation to evaluate opportunities to optimize your claims and audit process.

To date, we have had zero disallowances and have produced engineering studies in all 50 states, serving our clients in multiple disciplines including: Cost Segregation, Research & Development Credits, WOTC Hiring Credits, and Property Tax Appeals.

Contact us today for an initial phone consultation with one of our R&D Specialists to identify potential Qualified Research Expenditures (QRE). If qualifications are identified, we will collect an authorization to begin working on your behalf. No fee is charged until credits are identified and utilization is verified with the client’s accounting representation. The initial consultation is a simple and quick process.