Company Profile
- Industry: Software Development
- Location: California
- Revenue: $6 million
- Employees: 15 (primarily software engineers, developers, QA specialists)
Background
The company develops cloud-based business management software, aiming to streamline client processes. To enhance efficiency and customer experience, it invested in significant R&D efforts across core areas and utilized the R&D tax credit to leverage this ongoing innovation.
R&D Tax Credit Engagement
The company partnered with Acena Consulting for the following:
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- Qualification Assessment:
- In-depth analysis focused on these improvement areas:
- API Development & Infrastructure
- Inventory Management
- Order Management
- Shipment Management
- Evaluation of activities against the IRS four-part test (Purpose, Uncertainty, Experimentation, Technological Nature)
- Expenditure Calculation:
- Focus on wages for personnel directly involved in R&D within the improvement areas.
- Identification of eligible computer rental expenses connected to these areas.
- Detailed calculation of qualified research expenditures (QREs).
- Documentation:
- Technical reports detailing R&D work in each area of improvement.
- Emphasis on challenges, experimentation, and outcomes.
- Robust contemporaneous documentation to substantiate all claims.
- Qualification Assessment:
Results
Qualification analysis revealed eligible R&D activities within each improvement area:
- API Improvements:
Design of scalable REST APIs for seamless data exchange across systems.
- Experimentation with GraphQL for tailored data retrieval.
- Implementation of security protocols, authentication, and rate limiting.
- Inventory Management Improvements:
Development of algorithms for accurate, real-time inventory tracking.
- System optimization for low-latency inventory updates across platforms.
- Design of predictive analytics for demand forecasting and re-ordering.
- Order Management Improvements:
- Creation of rules-based order processing, reducing manual intervention.
- Algorithm development for intelligent order routing and fulfillment optimization.
- Integration with external systems for automated stock allocation and updates.
- Shipment Management Improvements:
- APIs enable smooth carrier integration and label generation.
- Development of a real-time shipment tracking and update system.
- Workflow and UI enhancements for streamlined returns management.
Financial Impact
- Qualified Research Expenditures (QREs): Approximately $2 million
- Federal R&D Tax Credit: $200,000
- California R&D Tax Credit: $100,000
Outcome
The company's R&D investment yielded significant operational enhancements and they were able to claim substantial R&D tax credits. These credits aided in: - Reduced Tax Liability: Direct offset against federal and state income taxes.
- Cash Flow Improvement: Funds were reinvested for continued R&D and innovation growth
Key Takeaways
- Focus Matters: Targeted R&D activity in core business areas unlocks significant value, both operationally and for tax benefits.
- Substantiation is Key: Clear documentation of R&D efforts is essential to support credit claims.
- Expert Assistance: R&D tax credit specialists offer guidance and maximize credit amounts.
