The research and development tax credit has steadily gained momentum with businesses of every size and scope and across every industry. New legislation, court rulings, and directives from the Internal Revenue Service have empowered companies in over 40 sectors to tap into the cash flow power offered from this lucrative tax benefit. From architectural and engineering to agriculture and wine-making, there is a diverse range of verticals leveraging the innovation tax credit for their small- to mid-sized ventures.
Despite the plan's significant potential benefits, countless eligible businesses in multiple fields still miss out on the capital offered through the innovation tax credit initiative. Some organizations fail to tap into the plan's advantages simply because they don't know the program exists, while others struggle to discern the legislative nuance in the ever-changing tax terrain. However, some entrepreneurs have all the details about the program they need, yet still fail to tap into the savings power of the R&D tax credit due to their concern of being audited.
Yes, the mere mention of the word "audit" can trigger a flash of (understandable) worry in most business owners. However, you shouldn't let fear of a future audit prevent you from leveraging this robust and lucrative incentive to minimize your company's tax burdens. Understanding some of the do's and dont's of qualifying activities can help you operate with a steady focus on what the auditors will look for when assessing your tax claims.
The Surge in R&D Tax Credit Claims Increases the Chance for Unproven Credits
Unfortunately, the increase in R&D tax credit claims means more companies are attempting to navigate through the filing process on their own. As a result, many business owners unknowingly file for unsubstantiated research and development tax credits on their returns. Any unproven claims can eventually trigger inconvenient audits and potentially costly penalties.
The best way to protect your business from wrongfully claiming research and development operations in your organization? Consult with a professional tax team that specializes in R&D studies. Partnering with a research and development firm for a thorough R&D study will not only ensure that your company optimizes cash flow opportunities on qualifying expenditures, but it can also yield several other significant advantages to your organization, such as:
Protect Your Business During an Audit
One of the biggest reasons beyond cash flow to consider a professional R&D study? Audit protection. The looming threat of an audit often deters business owners in every industry from claiming qualifying operations simply because they are worried they won't have the documentation needed to prove their claim during an audit. Partnering with a qualified innovation tax credit specialist to conduct your study means you'll have all the paperwork and proof needed for audit peace of mind.
Recover Expenses for Research and Development Activities
One of the biggest reasons for business owners to invest in an R&D tax study is to recoup the expenses they've incurred on eligible research and development activities. A review of your operations ensures that you not only can substantiate your existing claims but can also unearth some viable activities you weren't aware qualified for reimbursement, so you can maximize returns on all eligible costs.
Grow Your Future R&D Funds
For many companies, research and development is more than a pursuit in curiosity; it's a way for them to maintain their year-over-year competitive edge in the market. Using a thorough study to optimize your tax credits can grant your organization access to capital you didn't know your business had earned. These funds can be used to grow your research and development budget in future years to continue to expand your business and gain market share.
Lower Your Business’s Overall Tax Rate
Using an R&D study to identify and document all qualifying operations can also impact your final tax percentage. When claiming the R&D tax credit, the benefit is logged as a decreased tax expense. So, if you're accustomed to a specific tax rate to your business without claiming viable credits, reducing your overall tax liability with the credit can lower your tax rate, ultimately adding to your company's bottom line.
As a leading research and development tax firm, Acena Consulting specializes in thorough R&D studies to protect your business and maximize final tax benefits. Contact us today for a free consultation.