Consequences of Improper Research and Development Tax Documentation

3 Minute Read
Posted by Randy Eickhoff on Sep 30, 2019 7:59:57 PM

Let's talk about a potentially uncomfortable topic: improper tax documentation. At Acena Consulting, we recognize that outlining some of the unfortunate consequences stemming from inadequate documentation doesn't make for an overly enjoyable read. However, we also know that it's crucial to understand the risks your company will face if all appropriate paperwork isn't filled out and filed. Knowing what's at stake can help you take the right steps to protect your business.

Understanding the Importance of Maintaining Accurate Tax Documentation

As a business owner, you're required by law to maintain documentation to substantiate your research and development tax credit. Keeping all of these vital tax documents updated provides proof that your business is compliant with any mandated state and federal regulations. These forms, when viewed with other relevant tax documents, can also give business owners a glimpse into how a company is performing, delivering invaluable insight on the overall financial health of a business. 

Additionally, properly completed R&D tax forms can help your business avoid major complications if your company finds itself enduring an audit. From a productivity standpoint, nothing derails a company's best efforts faster than having to backtrack through all existing documents to prove to the government the accuracy of the information provided in your tax returns. Beyond a loss of time and productivity, not accurately maintaining your innovation tax records can prompt several negative consequences, including:

Tax Increase 
Companies with incomplete research and development tax records or lost claim receipts may find they cannot substantiate these deductions on their filed claim. Ultimately, the sheer lack of R&D tax credit documentation can increase your overall tax burden, forcing you to pay more than you actually owe.

Incur Significant Penalties
Many business owners don't realize that not having the right documentation available can mean more than the loss of relevant deductions. Not filing the correct paperwork may also incur a penalty from the IRS for failing to provide proof of your expenses.

Audit Failure 
Perhaps the biggest potential risk an organization faces when not having accurate and complete research and development paperwork is an audit failure. Failing an audit can result in a significant fine or even the forced closure of the business altogether if the infraction is severe enough. 

Fortunately, maintaining accurate tax credit documentation across all of your operations can be relatively straightforward. Following three simple tips can help ensure your documentation is accurate and available at all times:

Meet Payroll Obligations 
For most businesses, payroll represents one of its biggest expenses, making it a primary focus for the IRS. No matter what the size or scope of your organization, maintaining compliance with your payroll responsibilities is crucial. Always provide employees with w-2 forms based on IRS deadlines and keep annual reports with summaries of payments.

Tap Into Technology 
Even companies with a fully staffed accounting team can benefit from leveraging any of the accounting systems available for purchase. There are countless software systems designed for operations of every size, making it easy to find the right fit for your business. Understanding what to document and developing processes to do so efficiently can be crucial to a successful R&D tax credit claim. Additionally, the programs serve multiple purposes. Beyond tax documentation, the platform can also monitor financial management and pinpoint trends and patterns within your company. 

Get Outside Help
One of the most effective ways to maintain accurate tax documentation is to work with an outside professional accounting team. A qualified tax firm will manage the entire documentation process on your behalf to ensure complete accuracy that proves compliance and mitigates overall risk throughout the filing process.

For more information on tax documentation, contact Acena Consulting today. 


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Randy Eickhoff

Randy Eickhoff

Acena Consulting President Randy Eickhoff, licensed CPA, has partnered with more than 200 companies during more than 20 years of experience securing tax credits and other government incentives. His corporate partners range from multinational technology firms to smaller, privately held manufacturing, sports, and technology enterprises.