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Fighting for your credits means proper support and documentation.
Congress continues to reward US companies for their efforts to find and develop new technologies, new industries and, as a result, more jobs for US citizens. However, guidance on proper documentation for these efforts has been a moving target since the R&D tax credit was launched in 1981. Congress, the Internal Revenue Service and our judicial system continue to battle over proper documentation of activities and expenses.
Taking an R&D tax credit today is less about qualified activities and more about proper documentation. As a result, US companies who deserve these tax credits are not able to sustain their R&D tax credit claims under audit due to insufficient documentation.
While the standards for documenting time and effort related to qualified R&D projects has always been focused on source documentation such as W-2s and general ledgers, the use of estimates to substantiate R&D credit calculations (including base-year calculations) has typically been accepted thanks to early court decisions.
Recently, new taxpayer-friendly court ruling have blessed the use of some estimates where they are based off historical documentation. The more detailed the documentation, the better chance an estimate has of being accepted under audit. Most companies do not develop or keep documentation that is specific to projects, the individuals involved and how they qualify for the R&D credit. The lack of strong evidence can be the weak link.
Taking R&D tax credits is an important component of a competitive market strategy. Understanding the expenses to be documented, as well as how to properly document qualified R&D activities can mean the difference between a substantial tax savings and lower cash flow due to a higher federal and state tax burden.
Creating a proper system to document your R&D activities and expenses should blend into your internal processes, not create additional time-consuming burdens.
At Acena Consulting, our focus is helping companies and their CPAs better understand R&D credits and assisting in the development and implementation of proper documentation systems to sustain their R&D Credit when needed.
A word from just one of many satisfied clients
“Randall Eickhoff & Acena Consulting, LLC made seamless coordination between client and his CPA in delivering R&D credits study and making sure that credits are captured correctly within client’s tax return. Always available and pleasant to work with” -F.S. Partner, Los Angeles CPA Firm
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