R&D TAX CREDIT $85 BILLION UNCLAIMED LAST YEAR
The Federal Research & Development Tax Credit
The R&D Tax Credit is a government incentive designed to promote research and development efforts in the United States. It directly reduces federal taxes based on eligible expenses incurred while developing new or enhanced products, processes, or software.
Tax Credit Highlights:
✓ Increased Cash Flow: Unlock additional capital that can be reinvested into your business.
✓ Dollar-for-Dollar Tax Renefit from federal and, in some instances, state tax reductions that directly lower your income tax.
✓ Retroactive Claims: You can claim credits for open tax years going back 3-4 years, providing an immediate financial boost.
✓ Reduced Tax Rate: Lower your overall tax rate, enabling greater profitability in the long run.
Do You think your business might be eligible?
Maybe Some Of That Unclaimed $85 Billion Could Be Yours.
Businesses of all sizes - even start-ups - that engage in qualifying research activities (QRAs) may be eligible for the R&D tax credit. If your company is developing new or improved products, processes, or software, you probably can take advantage of this tax credit.
Eligible businesses may claim up to 10% of their qualified research expenses (QREs). But many eligible companies are leaving money on the table. Millions of dollars of R&D tax credit go unclaimed each year.
MONETIZING THE CREDIT
Companies that 1) have less than $5M in gross receipts for the current tax year,
2) Are within the first 5 years of receiving any gross receipts, and
3) Have claimed the payroll R&D tax credit less than 5 times,
can use the credit to offset up to $500,000 of the employer's portion of FICA and Medicare tax on an ON-TIME return.
Companies that have outgrown the payroll option can instead use the tax credit to offset their income tax liability.
There's no limit to how much you can claim; the credit can carry forward for up to 20 years.
Qualified Research Activities (QRA)
The IRS applies this Four-Part Test:
1) What is the Purpose?
Are you developing OR improving a product, process, formula, software, or invention? Are you improving performance, quality, efficiency, functionality, security, or durability?
2) Technological in Nature?
Is your work within the hard sciences: engineering, computer sciences, physics, chemistry, or the biological sciences?
3) Elimination of Uncertainty?
Is your work eliminating uncertainty regarding a product, process, formula, software, or invention? Are you asking questions such as "Can we develop it?" or "How can we develop it?" Remember: failures also eliminate uncertainty, so those expenses should also be included.
4) Process of Experimentation
Are you systematically evaluating one or more alternatives by building and testing models, running simulations, or using trial and error?
Qualified Research Expenses (QRE)
Here are some examples of qualified expenses:
> Supplies and Raw Materials
Supplies that are consumed or destroyed during the R&D process.
> Cloud Computing Expenses
The costs of using cloud computing resources in R&D activities.
> W2 Employee Salaries
Wages for conducting qualified research or directly supervising or supporting qualified research.
> Payments to Independent Contractors and Third Parties
Fees paid to contractors reported on Form 1099 are eligible expenses. Contractors must have been located in the US and have performed their work physically in the US when the R&D occurred. Companies can also outsource some of the R&D work to third parties.
Note: The right to claim some of the R&D credit can depend on how the third-party contract is structured.