R&D Tax Credit Study

Service description

Federal tax credit for businesses who make technical improvements to products, processes, computer software, techniques, formulas, or inventions.

Benefit

A tax refund, reduction of tax liability, or deferred tax asset equal to approximately 6% - 20% of research and development costs in a given year. For some businesses, the credit can be applied against the employer portion of payroll taxes.

ROI

Typically between 3:1 and 6:1

When you benefit

Reduction of tax liability is realized at the time on tax payment. Tax refunds often take between 3 to 9 months from filing. Deferred tax assets are recorded upon completion of the service. Payroll tax reduction realized as soon as the first quarter after filing the credit.

What it costs

See ROI.

When you pay

Provider dependent. Typical arrangements include (1) Full payment up front, (2) Progress payments, and (3) Full payment upon completion. Depending on the time of year, payments usually occur before benefit is realized.

Your commitment

Business provides service provider with tax returns, general ledger details, profit & loss statements, W-2s, 1099-MISCs / NECs, R&D related contracts, and R&D workpapers for, at minimum, the year in which R&D is to be claimed and the 3 prior years. In some cases, the service provider will interview Business owners and employees involved in and familiar with the R&D; this maybe occur remotely or on site at the business.

Documents to gather

• Federal income tax returns for the credit years
• Payroll records or W-2 wage detail for technical staff
• Project time-tracking exports, where kept
• Previously filed Form 6765, if the credit was claimed before
• General ledger detail for supplies and contract research costs

Other costs

Lack of responsiveness and organization by the Business or lack of preparedness, expertise, or diligence by the service provider can increase the organizational time and energy required to complete the service.

Risks to know

The IRS has increased scrutiny for certain R&D tax credits that come from unlikely businesses or outside the range of normal for the industry. Improper claims can result in forfeiture of the credit, additional interest, and penalties.

When risks arise

IRS audits most likely happen, if at all, 1-3 years from the date filed.

The process

Business provides service provider with requested documentation. Service provider speaks with requested personnel at the Business. Service provider calculates the credit and delivers substantiating report. Tax credit claimed on tax return and/or amended tax return filed to claim refund.

Common industries

Automotive, Consumer goods, Aviation & Aerospace, Retail & eCommerce, Food & Beverages, Medical devices, Biotechnology, Oil & Energy, Financial services, Telecommunications, Renewables & Environment, Apparel & Fashion, Logistics & Supply Chain, Craft beer companies, Cannabis companies, Farmers & agriculture, Advertising/Marketing analytics, and Logistics.

Further research

(i) Internal Revenue Code (IRC) §41 [add_linebreak] (ii) IRS Audit Techniques Guide: Credit for Increasing Research Activities