The research and development tax credit has undergone many updates and revisions over the last several decades. Initially launched in the early 1980s as an income tax credit, the R&D tax legislation was last revamped in 2015 to broaden eligibility parameters and allow companies in multiple industries across the country to access this dollar-for-dollar tax credit.
The R&D Tax Credit Is Still Riddled With Misconceptions
Unfortunately, each year, countless U.S. enterprises still fail to capitalize on the potentially lucrative innovation tax credit. Knowing some of the most popular myths and misconceptions surrounding the R&D tax credit can help ensure your enterprise doesn't miss out on cash flow opportunities offered through this government-backed growth incentive program. Many companies don't claim the research and development tax credit because they:
Don't Know It Exists
Despite being around (albeit in various forms) for almost forty years, many business owners simply don't know the research and development tax credit exists at all. This incentive program falls beyond standard tax claims, credits, and deductions. As a result, organizations that rely on internal financial resources or their corporate CPAs may not realize what the program offers—and that their business qualifies.
Believe It's Too Good to Be True
Even if business owners know about the credit, many assume that filing a claim will prove extremely complicated (aka more effort than it's worth). For small business owners, taking the focus off their core operations isn't feasible; they believe they can't afford to spend what they assume will be countless hours chasing what may or may not prove a worthy investment of time and resources.
Fortunately, business owners don't have to relinquish their C-level responsibilities to pursue the R&D tax credit. A professional firm that specializes in research and development tax law is the best way to determine potential yield for your organization. A skilled and reputable firm will be able to evaluate your company's eligible operations to quickly gauge if the possible ROI justifies the needed effort.
Aren't a Small Business
The program allows qualified startups to take the credit against its payroll tax. As a result, many entrepreneurs assume their larger enterprises aren't eligible. While a company may be too large to leverage the claim against its payroll, they may still be able to take it against its income tax. The income tax benefit can be carried forward for up to 20 years. Additionally, any credits from net loss years can be logged as a deferred tax asset.
Don't Have Any Employees
Some companies that do qualify as a small business also believe they can't claim the tax credit because they don't have any income (yet) and don't have internal employees. This isn't necessarily true either. Yes, wages often represent the most significant credit calculation. However, contractor expenses and even supply costs may qualify. If your company has no employees, but still claims the credit against payroll, any remaining credit would carry the credit forward to the next quarterly return. The credit does not expire; it will always be available in future quarters until it's fully used against payroll tax.
Already Filed Their Annual Taxes
Finally, many executives think once they've filed their annual taxes, it's too late to tap into the benefits of the research and development program. While it may be too late to use the credit to offset payroll, businesses can still amend their returns to leverage the benefit as an income credit. Your research and development tax professional may even suggest a "look back" of up to 3 years to capitalize on available unclaimed credits.
Acena Consulting partners with business owners of every size and scope to optimize R&D tax credits. Contact us today to hear more.