Newly Funded? How to Plan for R&D Tax Credits

As you invest in research and development this year, you can take steps now that will simplify the process of conducting your R&D study in 2021. Recent legislation changes have significantly impacted entrepreneurs. To optimize filing strategies, pay careful attention to all of your tax actions.

1. Identify Activities that Qualify for the R&D Tax Credit

If you do anything technology-based, improve it, and sell it, you probably qualify for both federal and state R&D tax credit. Many companies perform activities that qualify for the R&D tax credit without even knowing it. Examples of qualifying activities include:

• Designing, developing, or improving new products, processes, formulas or software or improving current ones
• Experimenting with code for new or improved software products
• Engineering to evaluate specifications for performance, reliability, quality, features, and durability
• Developing new production processes, including agile
• Improving a product’s time-to-market through more efficient designs
• Paying outside consultants or contractors for any of the above activities
• Incurring expenses for wages or supplies related to the above activities

2. Gather Documentation to Support R&D Tax Credit Claims

Step one in optimizing R&D tax credits is to Identify eligible activities. Step two is to show documented proof of all qualifying activities. You are able to estimate some qualifying expenditures. However, you must base this estimate on facts. Examples of documentation to include:

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

Our team of R&D tax credit specialists is here to help. We partner with business owners across various industries to assist with R&D tax planning to help you optimize the benefit for your organization. Contact us today to schedule a free consultation with one of our tax experts.