What is the Deadline for R&D Tax Credits?

R&D Tax Credit | December 2, 2020 | 6 min read

The research and development (R&D) tax credit helps businesses save millions of dollars every year. For companies engaging in eligible qualified research activities, the R&D tax credit offers them the opportunity to claim tax credits to offset payroll and income tax liability. It is important for businesses to work with an experienced and well-qualified R&D tax credit professional who can assist them in determining whether or not they are eligible, ensuring the business maintains the necessary documentation to support claiming the credit, and filing their R&D tax credit claim before the deadline. Don’t miss out on your opportunity to claim the R&D tax credit. Schedule a free consultation with Clarus R+D to learn more about R&D tax credits and discuss whether your business qualifies. Its technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive.

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Your business missed the R&D tax credit filing deadline: Now what?

You and your team are in the business of innovation. You work with a CPA at tax time but realize you can do more to take advantage of tax incentives, like the R&D tax credit. Knowing your business conducts qualified research, you want to be certain to claim the credits and not miss the research and development tax credit filing deadline.  Ideally, your business is going to submit IRS Form 6765 and the required documentation along with your initial tax filing in order to claim the R&D tax credit. For a variety of reasons, businesses often need to revisit tax filings for previous years. As such, there is no need to panic if you didn’t submit all the required documentation or necessary forms at the time of your initial filing; it may not be too late to claim the R&D tax credit. Generally, you have at least three years from the date you file your tax return (or from the statutory due date if the return is filed early) to amend your return to correct any errors or include any missing items. Additionally, this three year period can be further extended if you incur net operating losses, make subsequent tax payments, or voluntarily extend the time to assess deficiencies. Strategically, innovative companies claim the credit every year to realize the highest return on their investment. Even if not utilized in a given tax year, credits can be carried forward up to 20 years, and, in some cases, recorded as deferred tax assets on your balance sheet. Working with an experienced research and development tax credit advisor like Clarus R+D will help you claim R&D tax credits for prior tax filings and assist you in taking advantage of the tax credit going forward.

The R&D tax credit program is an immensely valuable resource which can help your business innovate and grow.

Sham Mustafa / Correlation One

R&D tax credit filing deadline

Paying attention to the R&D tax credit filing deadline is necessary for businesses to take advantage of the code’s largest tax incentive. The research and development tax credit is available to an ever-growing number of businesses who conduct research and development within the United States. The credit was implemented as a Congressional response to the decline in research spending which negatively impacted the Country’s economic growth, productivity gains, and overall global competitiveness. The R&D tax credit was initially implemented in 1981 and has since been reauthorized several times. In 2015, when the Protecting Americans from Tax Hikes (PATH) Act was adopted, the research and development (R&D) credit became a permanent part of the tax code. The R&D tax credit has been expanded throughout the years since its inception.  As such, more and more businesses are engaged in qualified research activities making them eligible for the R&D tax credit. Clarus R+D is your R&D tax credit consultant of choice to help your business take advantage of the research and development tax incentive.

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Claiming the R&D tax credit by the deadline matters

Businesses in the United States are battling in an intensely competitive global market. Tax incentives, like the research and development tax credit, are designed to protect American jobs and businesses while spurring ingenuity and innovation. The research and development tax credit helps by allowing you to take advantage of tax credits for the work your business is already doing. Smart businesses are taking those dollars saved via the tax credit and reinvesting in their growth. To make sure your business is able to make that annual reinvestment, it is important to claim your R&D tax credits by the deadline. Many businesses are unaware expenses related to their daily operations could qualify for a dollar-for-dollar tax credit towards their annual income and/or payroll tax liability, irrespective of industry or company size. Additionally, most states offer an R&D tax credit that can supplement the federal R&D tax credit.

For most companies, the credit is worth 7-10% of qualified research expenses. This is a dollar-for-dollar credit against taxes owed. Plus, it carries forward 20 years. For startups, applying the credit against payroll taxes is a valuable, non-dilutive funding opportunity. Eligible expenses for the R&D tax credit include U.S.-based wages, contracting, and supply costs. Most typically, wages are the largest qualified expense, and there must be nexus between the expense and qualified project.

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Eligibility and the R&D tax credit filing deadline

Before making the decision to claim the R&D tax credit, you need to work with a professional, like Clarus R+D, to help you determine your R&D tax credit eligibility. In order to be eligible for the research and development tax credit, your business must engage in qualified research. Qualified research generally is private sector or commercially driven development intended to yield innovation within a scientific or technological field. The following four-part test determines whether an activity is considered qualified research and, thus, eligible for the R&D tax credit.

Permitted Purpose

The purpose of the activity or project must be to create new (or improve existing) functionality, performance, reliability, or quality of a business component. A business component is defined as any product, process, technique, invention, formula, or computer software that the taxpayer intends to hold for sale, lease, license, or actual use in the taxpayer’s trade or business.

Elimination of Uncertainty

The taxpayer must intend to discover information that would eliminate uncertainty concerning the development or improvement of the business component. Uncertainty exists if the information available to the taxpayer does not establish the capability of development or improvement, method of development or improvement, or the appropriateness of the business component’s design.

Process of Experimentation

The taxpayer must undergo a systematic process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer’s research activities. Treasury Regulations define this as broadly as conventional implementation of the scientific method to something as informal as systematic trial and error process.

Technological in Nature

The process of experimentation used to discover information must fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. A taxpayer may employ existing technologies and may rely on existing principles of the physical or biological sciences, engineering, or computer science to satisfy this requirement. Research activities that qualify for R&D tax credits must be conducted in the U.S. If your business does any of the following, it likely qualifies for the R&D tax credit:

  • Develops or designs new products or processes
  • Enhances existing products or processes
  • Develops or improves upon existing prototypes and software

Clarus R+D will work with you to help you understand what is considered qualified research for purposes of determining R&D tax credit eligibility.

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R&D tax credit documentation: What you need before the filing deadline 

Claiming the credit is not so daunting for those businesses who maintain proper supporting documentation of their qualified research activities.  Since the credit may be claimed for current and prior tax years, companies can benefit from documenting their R&D activities to ensure they are positioned to claim the credit in both situations. To claim the credit, the taxpayer must contemporaneously evaluate and document their research activities to establish the amount of qualified research expenses paid for each qualified research activity. While taxpayers may estimate some research expenses, they must have a factual basis for the assumptions used to create the estimates.  Examples of such documentation include:

  • Timesheets
  • Version control for all technical documents
  • Prototypes, including software and physical products
  • Test documents
  • Developer or engineering notebooks
  • Meeting minutes
  • Whiteboard photos
  • Emails Invoices/ receipts
  • General ledger notes
  • Project notes
  • Contractor agreement outlining statement of work
  • Other documents a company produces throughout the regular course of business

Having the right supporting documentation will help the taxpayer maximize their benefit.  

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R&D tax credit consultants: What to expect

Whether you are planning to claim your credits in your current filing, or need to amend a prior tax year filing, here is what you can expect by selecting Clarus R+D as your R&D tax credit consultants:

  • Clarus R+D provides a team of professionals with expert credentials able to answer all your R&D tax credit questions.
  • Our proprietary software streamlines R&D studies which maximizes your ROI.
  • Clarus has expert knowledge of the IRS regulations relating to the research and development tax credit, IRC Section 41, as well as the regulations pertaining to state-specific research and development credits.
  • Clarus has extensive experience in recognizing qualified research activities and expenditures.
  • Our time-proven methodology has yielded maximum benefits to our clients.
  • The Clarus team has helped hundreds of clients claim millions in R&D tax credits.
  • We place emphasis on helping growth businesses take advantage of the tax incentive.
  • Clarus does the work for you; our web-based app allows you to enter information at your own pace.
  • We have extensive IRS and state audit experience and provide our clients audit support.
  • We have maintained an exceptional success rate in applying for the R&D tax credit.
  • We work directly with our clients and their respective accounting firm and payroll processor.
  • Our process saves valuable time and resources within the engineering and finance departments.
  • Our fees are very competitive.
  • Our performance, success rate, and unparalleled quality of service result in high client loyalty.

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Ready to get started?

Schedule a free consultation with our team of experts to learn more. We’ll discuss the R&D tax credit and help you determine if our solution is a fit for your company.

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Clarus R+D gave us tremendous ROI. Easy Software. Helpful people. Reasonable Fees.

Richard Cumberland / Zupt

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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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