Year-End Planning Tips to Optimize R&D Tax Credit Benefits

2 Minute Read
Posted by Brad Mols on Dec 9, 2019 6:31:21 AM

As hard as it is to believe, tax season is just around the corner. December is here, and in just a few months, business owners across every industry will find themselves in the midst of filing their 2019 taxes, making now the perfect time to consider some year-end actions to make the process as streamlined as possible. At Acena Consulting, we know that year-end tax planning typically proves challenging for U.S. business owners, and 2019 will inevitably prove no exception—particularly for entrepreneurs who qualify for the research and development tax credit.

The Tax Cuts and Jobs Act Has Significantly Impacted the Tax Landscape

The U.S. tax landscape has undergone rampant changes over the last few years, most notably with the passing of the Tax Cuts and Jobs Act (TCJA) of 2017. The extensive tax legislation changes of the TCJA have significantly impacted both individuals and entrepreneurs, prompting taxpayers to pay careful attention to all of their year-end tax actions to optimize filing strategies.

R&D Tax Credit Can Reduce the Tax Burden for Business Owners

The innovation tax credit remains one of the most significant opportunities for organizations across a wide range of verticals to lower their overall tax burden. However, the recent, monumental changes to tax law, coupled with standard R&D tax credit requirements, can feel overwhelming to business owners who perform qualifying research and development activities. One of the best ways to maximize the R&D tax credit is to begin preparing now. Here are a few tips on what you need to know as you go into year-end planning mode.

Consider Activities That Qualify for the Research and Development Tax Credit

A critical component in year-end planning is recognizing the types of activities that qualify for the R&D benefit. As a basic guideline, a qualified R&D project is an operation that:

  • Improves existing products or processes
  • Creates new products or processes
  • Develops new software and prototypes
  • Enhances existing software and prototypes


Gather Documentation to Support R&D Tax Credit Claims

Of course, identifying eligible activities is only the first step in successfully leveraging the cash flow opportunities associated with the research and development benefit. To claim the credit, business owners must show documented proof of all qualifying activities. It's important to note that the credit can be claimed for the current and prior tax years, making it essential to document eligible operations for all years the credit is claimed. Additionally, taxpayers may estimate some qualifying expenditures. However, they must use a factual basis to create these estimates. 

During year-end planning, many business owners find it useful to begin compiling supporting documentation, such as:

  • Eligible employee wages
  • Payroll registers
  • Time tracking data
  • Job descriptions
  • Meeting minutes
  • Ledgers outlining general expenses
  • Relevant project lists and notes

These are just a few examples of documentation that can help form the basis of a valid research and development tax credit claim.

Acena Consulting Specializes in R&D Tax Credits

Are you struggling to manage year-end planning for your research and development expenditures? Acena Consulting's team of R&D tax credit specialists can help. We partner with business owners in a multitude of industries to assist with year-end planning strategies that help position our clients to optimize the benefit for their organization. Contact us today to schedule a consultation with one of our tax experts.

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