It’s Time (Almost): Maximize the R&D Tax Credit With These Year-End Planning Tips

2 Minute Read
Posted by Brad Mols on Nov 25, 2020 10:45:58 AM

Well, it's officially that time of year again. In a year that felt like it would never end, 2020 is finally drawing to a close. As excited as we may be to say goodbye to 2020 forever, what comes after Q4 isn't necessarily everyone's favorite time of year: tax season. 

Acena Consulting Offers Suggestions to Streamline the Tax Filing Process

At Acena Consulting, we know that advanced planning can significantly impact our clients' final R&D tax credits. We also recognize that the tax process, in general, can cause stress and anxiety for business owners running operations of every size and scope. However, tax year 2020 will likely bring an added layer of tension with it since, for those of us who embraced the July 15 delay, it may feel like we just filed for 2019. 

The unprecedented events of the last year make it even more essential to start the planning process as early as possible, particularly for business owners who seized an opportunity to include research and development activities in their operations over the last several months. The R&D tax credit is one of the most powerful ways for companies that perform eligible activities to reduce their tax burden. Still, changes in tax laws and standardized R&D protocols can quickly overwhelm taxpayers. With year-end approaching, we recommend using the next several weeks to strategize your final 2020 tax actions. 

If you qualify for the research and development tax credit, here are a few year-end planning tips to consider:

Identify Qualifying R&D Activities

If you haven't been vigilantly recording potentially qualifying research expenditures as they occur, now is the time. Work with your accounting team to thoroughly examine your operations and designate valid activities that potentially fall into the following categories:

  • Develops a new process or product
  • Improves an already-existing function or product
  • Creates a new prototype or software
  • Improves an already-existing prototype or software

Get Your Paperwork in Order

Documentation plays a vital role in optimizing the research and development tax credit. Gathering proper paperwork now also saves you from having to backfill the data during the frenzy of prepping for an audit. As you work through the documentation process, know that the credit can be claimed for both prior and current tax years, making it essential to document qualified activities for every year that the credit is claimed. 

Also, through taxpayer friendly judicial decisions, business owners conducting qualified R&D activities may estimate time spent by their employees. These estimates must be reasonable and leverage a factual basis.

When collecting supporting paperwork, you'll want to include as much information as possible. Many taxpayers file evidence of:

  • Relevant employee wages
  • Time tracking information
  • Payroll registers
  • General expense ledgers
  • Job descriptions
  • R&D project lists, notes, and meeting minutes

An experienced R&D tax credit specialist will manage the documentation process for you to eliminate documentation gaps. 

Let Acena Consulting Help With Your Year-End R&D Tax Credit Preparation

Acena Consulting helps business owners navigate the innovation tax credit process to optimize cash flow and reduce corporate risk. Contact our R&D tax credit professionals today to begin your year-end planning strategies. 

 

 

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