The R&D Tax Credit – No Lab Coats Required!
What’s the first thing that comes into your mind when you think of the Research and Development Tax Credit? A mad scientist with crazy hair who never leaves his lab?? That’s not what today’s R&D Tax Credit looks like. Now, the face of R&D can be found in all types of engineers, software developers, physicists, biologists, chemists, material scientists and model shop or prototype employees. Now more than ever, companies across a wide variety of industries are able to take advantage of the R&D Tax Credit based on their current operations.
Why should I consider the R&D Tax Credit? First of all, a tax credit is a dollar for dollar reduction of your tax liability. You’ve already done the work and incurred the research expenditures. Now all you need to do is to monetize the activities and take the credit! Secondly, the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) made the R&D credit permanent, as well as expanding the utilization of the credit. Now, more companies are able to benefit from the credit.
What type of research qualifies for the R&D Credit? If your company is paying for or performing services in the areas of engineering, biological sciences, software development, physical sciences or computer sciences, for the purpose of developing or improving a product or process, YOU may have qualifying research activities! Are you doing research relating to the use of different materials to improve a product or process? “Feeling Green” and trying to develop environmentally friendly production processes? Are you engineering specialized tooling to optimize production? All of these may qualify for the R&D Tax Credit.
How much will my credit be? That depends on the amount of the direct costs of performing the research, either through your employees or outside consultants, as well as the supplies consumed in the experimentation process. These are known as the qualified research expenditures. If this the first year that you have qualifying R&D research activities, your credit could be around 4% of your qualified research expenditures. The percentage may be higher if you’ve done research in prior years, whether or not you’ve claimed the R&D credit previously.
If I’m interested in learning more about the R&D Tax Credit, what should I do? Contact your BMSS CPA and let him or her know that you would like to set up a complementary R&D consultation. Someone from our R&D Team will be happy to meet with you to discuss whether or not your research activities may qualify for the credit. If we all agree that you have qualified research activities, BMSS will assist you with knowing what types of documentation should exist to support the credit, as well as helping you in determining what expenses may qualify. Once we have this information, we will take it from there! We will calculate the credit to include on your tax return.
So, how much will it cost for BMSS to do an intial consultation to see if the R&D Credit is for me? Absolutely nothing! We will meet with you to discuss your operations to see if it looks like there may be R&D Credit potential. The real question is, How much is it costing you NOT to consider the R&D Tax Credit??