As a business owner, minimizing your overall tax burden can make a big difference in your final bottom line. If you’re an entrepreneur that qualifies for the research and development tax credit, it’s important to stay on top of the ever-changing laws and regulations to ensure you optimize final ROI for your company.
Acena Consulting works closely with business owners as they navigate constantly changing research and development tax laws. We prioritize understanding the changes in R&D tax legislation and how they directly impact taxpayers. Our R&D tax credit professionals advise our business owners on the current updates and changes to ensure they receive the maximum credits available.
Three recent R&D tax credit updates and a friendly reminder we believe would be helpful for business owners to know include:
Amended Returns With an R&D Credit
In the fall of 2021, a chief counsel memo announced a new process for taxpayers filing an amended tax return with an R&D tax credit. Typically, you can file an amended return up to three years from the original date of filing. In addition to filling out the R&D tax credit form, you must also:
- Identify all the business components to which the research and development tax credit claim relates for that year
- Identify all R&D qualifying activities performed for each business component
- Identify all individuals who performed each qualifying activity for each business
- Identify all the information each individual worked to discover
- Provide total qualified employee wage expenses
- Provide total qualified supply expenses
- Provide total qualified contract research expenses
Additionally, taxpayers filing an amended tax return must include a signed declaration verifying that the facts provided in the filing are accurate. It is important to note that facts should be sent as part of a written statement instead of through a production of documents. However, if documents are included, such as a credit study, it’s essential for the taxpayer to designate the exact pages that support each specific claim. Put simply: including multiple documents without context will not meet taxpayer requirements.
The IRS will send misfiled returns back to the taxpayer for amendments for one year while taxpayers learn to follow the guidance. If, after requesting changes, the taxpayer does not correct the missing information within 45 days, the claim will be denied.
Changes for Hawaii Businesses
In 2020, the state of Hawaii released legislation that made research and development credit 20% refundable, which is great news. However, taxpayers must submit their application by March 31 of the year following the year in which the research credit is being requested.
R&D Expense Capitalization
The latest TCJA regulations have implemented some significant changes to R&D tax laws. The current legislation states that taxpayers can no longer deduct R&D expenditures in the same year they are incurred. Instead, qualifying research and development expenses must now be amortized over 60 months.
R&D Tax Deadline is Quickly Approaching
While not a new update, it is important for businesses owners to recognize the quickly approaching R&D tax credit deadline. The extended deadline is now September 15, 2022, for businesses categorized as a(n):
- LLC
- Partnership
- S-Corp
For C-Corps and Individuals, the deadline is October 15, 2022.
Connect With an Acena Consulting Professional Today
The most important thing to remember when optimizing cash flow with the research and development tax credit is to act now. While there’s still time for filing, it’s critical to begin the process as soon as possible. Acena Consulting can help. Our team of R&D tax credit accountants can help you evaluate your client’s research and development qualifications, documentation, and calculation. Contact us today to learn more!
