By: Monika Diehl

GOP lawmaker introduces legislature to potentially double R&D tax credit

Clarus R+D | July 12, 2022 | 1 min read

The R&D tax credit could be getting a major upgrade. 

Recently, U.S. Rep. Jackie Walorski (R-Ind.) introduced H.R. 8253, the Fostering Innovation and Research to Strengthen Tomorrow (FIRST) Act. If signed into law at the end of this year, the bill would double the research and development tax credit and allow more small businesses and growing startups to take advantage. 

The proposed increase would affect both the traditional and alternative rates that are used in the calculation of the credit for companies who already have a history of doing R&D. For companies taking the credit under the traditional method, the credit would increase from 20% to 40% of their qualifying spend that exceeds a base amount. The alternative credit rate, which uses a simpler formula, would increase from 14% to 28% of qualifying research expenses.

Businesses that have not yet started R&D activities can still benefit from the proposed legislation. Under the simplified credit approach, businesses that did not have qualifying research expenses in each of the three prior years, would see an increase in their credit from 6% from 14% of R&D spend – more than doubling the amount of the benefit available to claim. 

Early stage companies with little or no income can still utilize these credits by taking them against Social Security payroll taxes. The maximum amount that they can claim would also see a substantial increase: from $250,000 to $500,000. 

The R&D tax credit is already a valuable opportunity for companies to get rewarded for driving innovation in the US. The proposed legislation will make this benefit even greater. If your business develops or improves processes or products, talk to one of our experts today to find out what the credit could be worth to you.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Adam Winter, Chief Technology Officer

What is SOC 2 and Why is it Important?

Clarus R+D | May 25, 2022 | 1 min read

SOC 2 compliance is a crucial framework for technology and cloud computing companies today. Created by the American Institute of CPAs (AICPA), the goal of SOC 2 is to make sure that systems are set up to assure the security, confidentiality, and privacy of customer data. It demonstrates an organization’s commitment to maintaining a high level of information security.

Clarus R+D is proud to be certified as SOC 2 (type II) compliant.

The goal of SOC 2 is to make sure that systems are set up to assure the security, confidentiality, and privacy of customer data.

Becoming SOC 2 compliant involves adhering to a complex set of standards and requirements pertaining to how a company safeguards data and how well those safeguarding measures are performing. Being type II compliant involves a more thorough audit process to observe how security functions operate over a longer period of time, instead of an audit done from reports taken at a specific moment in time.

SOC 2 audits are performed by auditors at licensed CPA firms who specialize in information security. Receiving a SOC 2 certification indicates that an organization has significant security processes in place in order to protect customer data, confidentiality, and privacy.

R&D studies require the compilation of personal and sensitive information, including wages, employee details, and company product information. Having systems with advanced security measures allows users to feel confident since this data is crucial to building R&D studies that are IRS compliant and defensible in the event of an audit.

At Clarus R+D, we are committed to the security and protection of client data. Our R&D tax credit platform is built around IRS standards to provide defensible and complete R&D studies, all while securing the sensitive information that is used within these studies.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Jeff Haskett, Co-founder

8 Reasons Startups Miss Out on the R&D Tax Credit

Clarus R+D | May 6, 2022 | 3 min read

The R&D tax credit was established in the early 1980s as an incentive to stimulate growth in the US economy. But due to the fact it was an income tax credit, it saw little use by pre-revenue startups. In late 2015, the federal government changed the rules about how companies could claim the R&D tax credit. Early-stage companies can now take advantage of this lucrative incentive, up to $250k per year, that traditionally only went to the big guys.

If you’ve never claimed the credit, it’s time to reconsider. Move past any skepticism or misconceptions and use this financial benefit as a meaningful way to fuel your company’s growth.

Still, many startups don’t understand they’re eligible to claim the R&D credit and continue to miss out on money they’ve already earned. At Clarus R+D, we talk to entrepreneurs every day and we’ve heard it all. Here are the top reasons startups miss this non-dilutive funding opportunity.

It sounds too good to be true.

Entrepreneurs expect to work hard for funding, so they can initially be skeptical about this benefit they’ve actually already earned. The R&D tax credit is a legitimate government program that rewards investments in innovation.

I’m not earning any revenue so I didn’t think I qualified for the R&D tax credit.

Companies don’t need revenue to claim the credit, and don’t need to be paying income tax. The credit can be taken as a payroll tax offset, up to $250K per year, by qualified small businesses. You are considered a qualified small business if you have less than $5 million in revenue and are within five years of your first gross receipt.

I don’t have any employees so I didn’t think I could take the R&D tax credit.

Although wages are typically the biggest component of the credit calculation, contracted costs and supplies are also eligible. If you take the R&D credit as a payroll tax offset, but have no payroll, the credit can be carried forward to the next quarterly return. The credit doesn’t expire and continues to be available until it can be fully used against payroll tax.

I’m not a qualified small business so I didn’t think I could claim the R&D tax credit.

While only qualified startups can take the R&D credit against payroll tax, other companies can take it against income tax. This benefit can then be carried forward for a period of 20 years. Credits generated in net loss years can be recorded as Deferred Tax Assets, enhancing your balance sheet and making your company more attractive to potential acquirers.

I might not do R&D work.

There are many different industries and products that qualify for this credit where development activities pass a four part test. Most technology startups, including software companies, qualify.

My work wasn’t incorporated into my end product so I didn’t think it qualified.

The work does not need to be successful to qualify. If you spent time and money working in a certain direction then needed to change, that effort still qualifies.

I already filed my taxes so I thought it was too late to claim the R&D credit.

Although it’s too late the claim the credit as a payroll tax offset, companies can amend their returns to monetize it as an income tax credit—and can even consider performing a ‘look back’ (up to 3 years) to capture unclaimed tax credits.

I thought the cost of an R&D study wouldn’t be worth the benefit.

The concept of an R&D tax credit is simple. The government wants to reward you for investing in innovation. While the concept is simple, a traditional R&D tax study is notoriously complex. The challenge is getting it done right for a reasonable effort and cost. The Clarus R+D software streamlines and automates the process of claiming the R&D tax credit.

Next steps.

The R&D tax credit must be submitted with your annual business tax return. As the taxpayer, you are required to keep documentation showing that your work meets the criteria to qualify for the credit, and that your credit was calculated from your related qualifying costs. Because the IRS continues to see misuse of this credit, it’s important to have solid documentation on hand in case of an audit. Clarus R+D has deep expertise in helping startups with the R&D tax credit—ensuring compliance, simplifying the process, maximizing the benefit, partnering with your tax preparer, and integrating with your payroll provider for easy monetization.

To learn more, contact the Clarus R+D team of tax experts for a free consultation, or use our quick calculator to estimate how much money you could put back in your company’s pocket.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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Clarus R+D Launches Updated R&D Study Platform

Clarus R+D | May 3, 2022 | 1 min read

Clarus R+D is proud to announce that the newest version of our R&D tax credit platform was released on May 2. The updated platform features:

  • software enhancements
  • a cleaner, more streamlined user experience
  • better functionality to assist with complex R&D studies

The research and development tax credit is America’s largest tax incentive, but it is extremely underutilized due to its complex nature. Built by R&D tax experts, our platform automates R&D study processes and directly adheres to IRS code. Whether you are completing one study or hundreds, the platform will guide you step-by-step through the process while ensuring you have all necessary documentation to remain IRS compliant. Our expert team is also available for support and guidance along the way. 

Our mission is to ensure that companies of all sizes can realize and optimize the power of the R&D tax credit in order to materially impact their business. We are excited to unveil these platform updates and continue to make the R&D tax credit accessible to innovators across the country.  

For an overview of exciting new features offered in this platform update, watch the video below.

                                                                             Platform Overview

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Brent Johnson, CEO

A Tax Return Do-Over for the R&D Credit

Clarus R+D | April 18, 2022 | 1 min read

The IRS does not have a reputation for being magnanimous or for allowing you to correct mistakes easily. But when it comes to forgetting the federal R&D tax credit, do-overs do exist.

If the deadline (including extensions) has not yet passed when you discover the missing credit, you can file what’s called a superseding return. This essentially undoes the filing of your original return, allowing you to include the necessary documentation for the R&D credit.

If the deadline has already passed, filing an amended return is your only option. Although an amended return solves a forgotten R&D credit in many cases, it does not help companies that had hoped to offset payroll taxes. When amending, the R&D credit can only be used to offset income taxes.

Moral of the story? Aim to complete your R&D study before the tax deadline and submit form 6765 alongside your company’s original filing. If you’re nearing the tax deadline and unsure of your eligibility, consider extending so you don’t miss the credit entirely or limit your ability to monetize it.

To find out more, schedule a free consultation with Clarus R+D. Our technology-driven solution simplifies R&D studies, maximizes your benefit, and reduces overall fees.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Monika Diehl, VP of Operations

How to Safely Claim Your R&D Tax Credit According to the IRS

Clarus R+D | March 4, 2022 | 1 min read

The latest memorandum and guidance from the IRS regarding filing for the R&D tax credit have increased the need for compliance, proper documentation, and having a reliable partner to guide you through the process. 

In October 2021, the IRS Office of Chief Counsel released a memorandum regarding tax filing procedures for companies submitting claims for the credit in order to improve guidance on how to prove their validity. This memorandum significantly expanded the documentation required to accompany the filing of amended tax returns claiming R&D tax credits. 

Furthermore, in early 2022, the IRS updated their FAQs for businesses looking to claim the R&D tax credit. The new update offers additional guidance based on trends of questions that the IRS receives from tax professionals and taxpayers alike. 

One notable addition to the FAQs relates to a taxpayer’s ability to challenge the ruling of an invalid R&D claim in front of the IRS Independent Office of Appeals. If a claim is denied based on a timeliness determination, then it is eligible for an appeal. However, claims that are denied on the basis of being deficient or otherwise not processable are not eligible to enter the appeals process. This emphasizes the importance of precision, timeliness, and proper documentation from the very beginning of an R&D study, since an appeal is not guaranteed. 

As requirements for the processes and documentation of the R&D tax credit continue to evolve, it is more important than ever to have an experienced partner to guide you in making complete, compliant studies.  

At Clarus R+D, we’ve created a unique software platform that allows users to unlock the full potential of the R&D tax credit while remaining compliant with IRS standards. Our experts ensure that your claims are defensible and supported by all required documentation and proof.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Monika Diehl, VP of Operations

The IRS Memorandum on R&D Tax Credits Could Affect Your Claim

Clarus R+D | January 27, 2022 | 1 min read

On October 15, 2021, the IRS issued a Chief Counsel Memorandum regarding tax filing procedures for companies submitting claims for the research & development tax credit to prove the validity of the refund.

These procedures, which went into effect on January 10, 2022, significantly expand the documentation required to accompany the filing of amended tax returns claiming R&D tax credits.

The procedures will result in high tax preparation costs to businesses, which could deter them from claiming credits.

Recently, the American Bar Association (ABA) sent a letter to the IRS emphasizing the increased burden that the compliance procedures have on taxpayers. The ABA stressed that the procedures will result in high tax preparation costs to businesses, which could deter them from claiming credits. They cite the Paperwork Reduction Act of 1995, which requires the IRS to consider the cost-benefit to the taxpayer when complying with filing procedures.

And since traditional firms can charge up to 30% of the R&D tax credit claimed, any added costs and effort could impede qualified businesses from claiming credits to which they are entitled.

While this memorandum brings new requirements and steps to the tax credit process, technology offers a solution to help you navigate the changes without added expense. By using a cloud-based software where all your information is stored in one place, you can ensure you have all documentation to meet the new standards of the memorandum, as well as staying organized if an audit were to occur in the future.

For companies wanting to file claims for the R&D tax credit, it is crucial to be thorough when documenting qualified research activities and expenses. In order to take advantage of this valuable tax credit, you have a responsibility to make sure your claim is defensible and compliant with IRS guidelines.

Clarus R+D can help you claim R&D tax credits without stress or confusion. Our efficient and user-friendly software platform allows you to organize all required documentation so that you are prepared in the event of an IRS audit. We’ve streamlined the process to save you time and money so that you can get back to running your business.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Monika Diehl, VP of Operations

IRS Releases Draft Instructions for R&D Tax Credits

Clarus R+D | January 12, 2022 | 1 min read

The R&D and ERTC tax credits are incredibly valuable opportunities for businesses of all sizes to save money, and in turn, continue to invest in innovation and development. Recently, the IRS issued an early release draft of instructions for completing Form 6765 (“Credit for Increasing Research Activities”). This draft reflects updated legislation, originally enacted December 2020, that specifically defines the definition of qualified wages, which impacts Lines 5 and 24 of the form. It is important for businesses who are looking to claim one or both of these lucrative tax credits to understand exactly the kind and quantity of wages that can be claimed.

 

While businesses can opt to claim both credits, ‘double-dipping’ is not permitted.

 

One of the most important details to note is that while businesses can opt to claim both credits, ‘double-dipping’ is not permitted. A business claiming wages for the R&D credit cannot use those same wages to claim the employee retention tax credit. Similarly, wages used to claim ERTC on Form 5884-A cannot be used again to claim the R&D credit. Businesses looking to claim both R&D and ERTC will need to ensure that there is no overlap between the wages used to calculate the two credits.

The draft instructions for filing Form 6765 can be found here, but it is important to note that both draft forms and draft instructions should not be referenced when filing until they are completely finalized by the IRS.

The IRS is expected to finalize all tax filing forms and instructions by the end of January 2022.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Accounting Today

Accounting 4.0: Don’t become Blockbuster Video

Clarus R+D | December 16, 2021 | 1 min read

Jeff Haskett, CEO of Clarus R+D, and Kevin Dehner, CPA at Clark Schaefer Hackett, authored this article for Accounting Today.

Remember strolling through the aisles of Blockbuster Video to find just the right movie on Friday night? At its peak, Blockbuster owned over 9,000 video-rental stores throughout the United States and had 65 million customers. Today, aside from the lone Blockbuster storefront in Bend, Oregon, Blockbuster has essentially disappeared. Why?

With Netflix nipping at its heels, Blockbuster was well aware of the future trend of streaming video. However, it underestimated how quickly the future would come. Once it decided to prioritize the change, it was too late. As people have begun to talk about “Accounting 4.0,” the change in our industry is now.

Accounting 4.0

As a result of increasing technology and automation, accounting firms are finding themselves at a crossroads where they will need to shift their primary focus from compliance to a more balanced approach including value-based consulting services.

Compliance work will always be needed, but the question is who will provide it? As this work gets more commoditized and automated with technology, firms are already feeling competitive pressure from new tech-forward services offered online. To use the Blockbuster reference, people didn’t stop watching movies; they just shifted to a new delivery model when they struggled to see the value in the old one.

Accounting 4.0 offers a more comprehensive and holistic approach to accounting. It connects physical with digital and allows for better collaboration and access between CPAs and their clients. Accounting 4.0 empowers firms to better control and understand clients, leverage data to boost productivity, improve processes and drive growth. Let’s embrace it as the opportunity that it is.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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By: Monika Diehl, VP of Operations

IRS Releases Memo Defining Requirements for R&D Tax Credit Claims

Clarus R+D | December 1, 2021 | 1 min read

For companies submitting claims for the R&D tax credit, the IRS is clearly defining requirements to prove the validity of the refund. The memo underscores the approach we have always taken in supporting our clients’ R&D claims. Not all practitioners or R&D software follow these guidelines. But we always have. Our R&D platform backed by tax experts strictly adheres to IRS guidelines.

To support an R&D claim, the IRS states that for each business component, companies need to:

  • Identify all research activities
  • Name the individuals who performed the research activity, and
  • Describe the information each individual seeks to discover

R&D documentation also needs to detail:

  • Total qualified employee wage expenses
  • Total qualified supply expenses, and
  • Total contract research expenses for the year.

These requirements define what information companies should provide with their claims, what format they should use, and how the statute of limitations applies.

Claims for the R&D credit take up significant time and resources for both the IRS and taxpayers. Enforcing requirements for claiming the R&D tax credit is part of the IRS’s efforts to manage issues with the credit and IRS resources. The requirements allow the IRS to determine upfront if an R&D claim should be paid immediately or needs additional review.

The IRS is offering a grace period until January 10, 2022. Once the grace period expires, there will be a one-year transition period. During that time, taxpayers will have 30 days to correct an R&D claim before the IRS makes a final determination on the claim.

For companies already claiming the R&D tax credit and those that are just beginning to determine their eligibility, it is critical to be thorough when documenting qualified research activities and expenses. To reduce your tax burden with the R&D tax credit, you have a responsibility to make sure it’s defensible by adhering to IRS guidelines and properly tracking expenses. Clarus R+D can help you claim R&D tax credits without stress or confusion.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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