Two Keys to Year-End Planning for R&D Tax Credits

With tax season just around the corner, business owners will begin the sometimes harrowing task of filing their 2019 taxes. We understand that year-end tax planning can be overwhelming for startups and SMBs. With the passing of the Tax Cuts and Jobs Act (TCJA) of 2017, tax legislation changes have significantly impacted entrepreneurs. To optimize filing strategies, pay careful attention to all of your year-end tax actions. So what steps can you take now to simplify the process and maximize your tax credit?

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

Remember, if you do anything technology-based, improve it, and sell it to customers, 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 realizing it. Some 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

Identifying eligible activities is the first step in optimizing tax credits associated with R&D. The next step is to show documented proof of all qualifying activities. The credit can be claimed for the current and prior tax years, which makes it important to document eligible operations for all of the years the credit is claimed. Also, you can estimate some qualifying expenditures. However, you must base this estimate on facts. Examples of documentation to compile:

• 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 in various industries to assist with year-end planning strategies that can help you optimize the benefit for your organization. Contact us today to schedule a free consultation with one of our tax experts.