The R&D tax credit is an immediate source of cash for businesses of all sizes. Yet most credits are claimed by just a few of the nation’s largest companies. Startups and SMBs often miss out on this incentive, despite their significant investments in qualified innovation.

In this webinar, Clarus R+D and Gust address common misconceptions about the R&D tax credit. We take a deep dive into the types of work that qualify, as well as the various calculation methods and monetization strategies. There has never been a better time to claim the R&D tax credit than right now, especially for growing businesses.

Facilitators: Peter Swan, Ryan Nash
Presenter: Essie Pacetta

December 14, 2020

In this webinar, Clarus R+D and Gusto discuss how you – as a people advisor – can help clients claim their R&D tax credit. We address common misconceptions about the credit and define how you can help small and midsize companies take advantage of this meaningful tax incentive. We also identify how you can grow your firm’s revenue through the unique Clarus and Gusto integration.

For a closer look at the webinar slides, feel free to download a PDF of the deck.

While many CPA firms are aware of the tax-savings potential offered by R&D tax credits, not every firm or accountant has the time, resources, or expertise to take on the R&D tax credit application and documentation production process for its clients. CPA firms and their R&D tax credit eligible clients require the expertise of a well-qualified and experienced R&D tax credit professional to assist in claiming the biggest tax incentive available to businesses. Since its introduction in 1981, the R&D tax credit has expanded so that more and more businesses across many industries are able to claim the credits. In order for your business to be eligible to claim R&D tax credits, it must engage in certain qualified research activities. Schedule a free consultation with Clarus R+D to learn more about R&D tax credits or to discuss whether your business activities are eligible. Its technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive. Clarus R+D has successful partnerships with its clients and their CPA firms throughout the country.  

Contact us for additional information

R&D tax credits: What CPAs and their clients need to know 

The Research and Development tax credit is a government-sponsored tax incentive available to companies 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.

I encourage any entrepreneur or company with significant dev expenses to pursue the R&D tax credit. The ROI compared to the amount of time spent is worth it.

Jeff Wilkins / FMX

Many taxpayers assume the R&D tax credit is available only to major corporations conducting tests in research laboratories. This, of course, is not the case. Businesses of all sizes across many industries are eligible for the incentive as long as they are engaged in qualified research activities. Under the current tax code, any company that develops or improves products or processes may be eligible for the credit. The number of businesses who engage in eligible activities is ever-increasing as are the eligible activities that qualify a business for the credit. More and more businesses are engaged in qualified research activities making them eligible for the R&D tax credit. Clarus R+D is your tax credit consultant of choice to help your business take advantage of the research and development tax incentive.

Learn how your business can claim the R&D tax credit

R&D tax credits and CPA partnerships

At Clarus R+D, we believe companies that are investing annually in R&D have a fiduciary duty to take advantage of the R&D tax credit every year. As a financial partner to these companies, CPA firms have an opportunity to add value. The value-added benefit can be a partnership with the R&D tax credit professionals at Clarus R+D. 

Clarus R+D has experience with a variety of partnerships, a few of which are outlined below.  

Referral partner

Your clients trust you and look to you for advice. By referring clients to Clarus R+D for R&D tax credits, you add to their bottom line and help drive innovation. The referral option is an easy way to get started with R&D tax credits. If you think you have a client that qualifies for the R&D tax credit, refer them to Clarus R+D,  and we’ll keep you up-to-date on their progress. In the end, you’ll receive qualification reports to document eligibility and form 6765 to include in their return.

Outsource

The outsource partnership works well if you are familiar with the R&D tax credit and have a number of clients that qualify. You offer the credit as a service under your firm’s brand but without the risk and overhead. A white-label version of our software helps you drive efficiency and compliance. We do the backend study review. At the end of the day, you add value for your clients and your firm, but without the expense of a new R&D practice.

Software

Already offering R&D tax credits services to your clients? Need ways to increase compliance and efficiency? With our software partnership, all R&D studies are completed between you and your client using a white-label version of our platform. If you need any technical assistance with the software, Clarus R+D is available.

Co-marketing

Many growing businesses continue to fail to take advantage of R&D tax credits. Some perceive it to be too complex or costly. Others mistakenly believe they don’t qualify. Many businesses perform activities that qualify for the R&D tax credit without realizing it. Co-market with Clarus R+D to educate and inform your audience about the value of R&D tax credits. Our partnership options make it easy for you and your clients to take advantage of the R&D tax credit. 

Schedule a demo with Clarus R+D to learn more

What CPAs and their clients look for in an R&D tax credits advisor

Selecting the right R&D tax credit advisor is an important first step. Whether the taxpayer is selecting the R&D tax credit professional, or if that task was entrusted to the taxpayer’s CPA firm, it is necessary to select an R&D tax credit consultant you can trust. Here are some points to consider in making your R&D consultant selection.  

Qualified team

To capture the maximum number of federal and state R&D tax credits for your clients, you want to make sure you are working with R&D experts who have comprehensive expertise in the field. In addition to a long record of successful R&D credit results, Clarus R+D has experience working with clients across many different industries – especially those taxpayers engaged in the business of manufacturing and technology development. 

National presence

Make certain your R&D tax credit experts can represent your clients wherever they conduct business. The team at Clarus R+D has experience working with clients across the country. 

Individualized pricing

Our pricing is built to fit your business and designed to reflect the efficiencies of our process. Companies pay a small base fee plus a percentage of their credit. For startups, we offer a special pricing option.

High audit success rate

No one wants to think about an IRS audit, but it is always a good idea to be prepared. If an audit is initiated, it is necessary that a business is able to provide documentation supporting its R&D activity and eligibility. This is just another among the many reasons why taxpayers and their CPA firms make the decision to work with an R&D
tax credit professional to avoid any unnecessary worry during audit time. Clarus R+D delivers audit-defensible R&D tax credit study reports.

Clients own the work

In a Clarus R&D tax credit study, the client owns all the work. The Clarus team is committed to transparency, and the client retains ownership of all the work and data. It is important for Clarus that is its clients see both the finished product, and the work involved to get there.

Learn more about R&D tax credits

Using your CPA to help select your R&D tax credit advisor

Your tax clients expect the CPAs at your firm to provide guidance and advice that lead them to the most advantageous tax outcomes – that includes presenting opportunities for the taxpayer to take advantage of tax incentives when available. Here are some tips for CPA firms when choosing to work with an R&D tax credit professional.  

1. Familiarity with taxpayer business

Being familiar with the client’s business should be a priority for your CPA team as you’ll be better able to identify opportunities to put more money back into the client’s business. Many businesses that could qualify for the R&D tax credit are not aware that it even exists, or they are aware that it exists but don’t think they qualify. The reality is that a number of companies in a variety of industries typically perform qualifying activities. Have your CPA team ask about projects that the client is working on, new processes they are creating to improve efficiency, and any new developments within the business that they may be excited about. An evaluation of the types of employees they have on their payroll can also help your team discover potential R&D tax credit opportunities.

2. Qualified Research Activities (QRAs) determination

The IRS uses a 4-part test to determine if a business activity qualifies as research. Make sure your team is familiar with the 4-part test when they evaluate the client’s eligibility for the credit. In general, for an activity to be eligible, it has to (in most cases) relate to a new or improved product, process, formula, computer software, program, technique, or invention. Although the 4-part test may seem fairly straightforward, there are complexities with which CPAs who are not experts in R&D tax credits will have no familiarity. 

3. Excluded activities

More often than not, CPAs and business owners are misled by the name “R&D tax credit”; there is an assumption that their typical business activities would not qualify for the lucrative tax incentive. While many business activities are among those considered qualified research, there are certain exclusions with which your firm should be familiar. 

• R&D activities performed outside the U.S.
• Funded research Research in non-scientific areas i.e. social sciences, arts or humanities
• Market/consumer research
• Ordinary quality control testing
• Routine data collection and analysis
• Internal business process development
• Management studies and surveys
• Adaptation or duplication of existing business components (products, inventions, formulas, software, processes, or techniques)
• R&D activities conducted solely to improve product aesthetics
• Research conducted after the start of commercial production or implementation of the new innovative component (some exceptions apply)
• Locating and evaluating mineral deposits, including oil and gas

These exclusions are not as straightforward as they may seem. Contact Clarus R+D for more information on these exclusions before concluding your client is not eligible. 

4. R&D tax credits in a nutshell

After learning about the client’s business activities and determining that they could potentially qualify for the tax credit, your CPAs will need to explain what the credit is and why they believe the business might qualify. The R&D tax credit is a dollar-for-dollar federal tax credit that incentivizes the development of new or improved products or processes. Companies like yours can qualify for significant federal and state tax savings to allow them to hire new employees, invest in new products and service lines, and grow your business. Potentially any company that performs qualified research activities on U.S. soil can take advantage of the credit.

5. Supporting the claim

There are a number of factors that contribute to qualifying for this tax credit and you must be able to support, document, and validate the case for your client to receive an R&D tax credit. This is why working with an R&D tax credit professional is the best way for your client to maximize its R&D tax credit claim.  

Contact Clarus R+D for additional information

CPA’s and R&D tax credit eligibility

Working with a professional R&D tax credit consultant, like Clarus R+D, is the best way for your CPA firm to determine its client’s tax credit eligibility. In order to be eligible for the research and development tax credit, the taxpayer 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

Exclusions

Even if your work passes the four-part test, there are a few exclusions to the R&D tax credit. Expenses incurred under the exclusions will not qualify for the incentive. Some of these already appear in the four-part test, including the need to rely on hard sciences. The activity must take place in the U.S. and cannot include routine data collection or market research. Also, activities cannot receive funding from an unrelated third party because your company might not retain ownership of the resulting intellectual property. 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.

Common misconceptions about R&D tax credit eligibility

Every year, eligible businesses don’t avail themselves of the benefits of the R&D tax credit. IRS statistics show that R&D tax credits worth over $12 billion were claimed in 2014, the latest year for which data is available. While this sounds significant, a large number of eligible entities neglect to claim the R&D credit. One of the biggest drivers for the underutilization is likely a lack of knowledge by both taxpayers and their advisers. Many are unaware of the R&D credit or otherwise believe their business activities are not eligible. Other reasons taxpayers miss out in claiming the credit include:

• Lack of understanding
• Can’t monetize the credit
• Complexity of the calculation
• Cost
• Audit fear

Clarus R+D can help provide clarification on the applicability of the research and development credit, walk you and your team through a study and calculation, and can be there to support you in times of an audit.

Small businesses and startups

Despite its well-established and successful history, countless eligible companies fail to claim the research and development tax credit every year. This is especially true for owners of small businesses and startups. Small businesses and startups may be eligible to apply up to $1.25 million—or $250,000 each year for up to five years—of the federal R&D credit to offset the Federal Insurance Contributions Act (FICA) portion of their payroll taxes each year. To be eligible, a company must meet two requirements:

1. Have less than $5 million in gross receipts for the credit year
2. Have no more than five years of gross receipts

Those taxpayers, however, might fail to consider their eligibility for the R&D tax credit program for any number of reasons.  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 some of the reasons startups miss this non-dilutive funding opportunity.

Too complicated

Some entrepreneurs assume the program sounds too good to be true and, therefore, complicated. At Clarus R+D, we work with small- to mid-sized business owners to discuss the eligibility requirements, explain the benefits of the tax credit program, and offer solutions to maximize the credit.

The business has not produced any revenue

Once again, companies don’t have to demonstrate income (or pay income taxes) to qualify for the credit. Qualifying smaller companies and startups can take the benefit as a payroll tax offset, claiming up to $250,000 every year. This applies to small businesses showing less than $5 million in the credit year, with no gross receipts in the previous five years.

The business does not have any employees

Sure, using the credit to offset payroll taxes does make it seem as if you’d have to have employees to pay. While wages generally contribute most heavily to the final credit calculation, other costs, like supply expenses and contractor payments, are also eligible. Most importantly, if you do take the research and development credit as a payroll tax offset without actual payroll, you can carry the credit forward for up to 20 years.

The business doesn’t do research

This is, perhaps, the greatest misconception about R&D tax credit eligibility. You needn’t be in the business of operating a research laboratory to be eligible for the research and development credit. You don’t have to employ a team of scientists running around in lab coats either. At Clarus R+D, we partner with entrepreneurs across all industries.

The business is not successful

A business does not have to be successful to qualify for the benefit. Riskier initiatives often fail with no return on investment. Recognizing that, the federal government provides incentives like the R&D credit to lessen the burden. Consequently, you will be rewarded for facing technical challenges and pushing forward on innovative solutions. These technological breakthroughs are all part of the research and development terrain. Even if the work isn’t successful, the effort itself (and the costs associated with it) may make your business eligible to receive the credit.

Business does research but not developing anything new

The R&D tax credit is for taxpayers that design, develop, or improve products, processes, techniques, formulas, or software. It’s calculated on the basis of increases in research activities and expenditures—and as a result, it’s intended to reward companies that pursue innovation with increasing investment. R&D doesn’t have to be new to the industry. It simply needs to be new to the company, which must have activities that meet the four-part IRS test below. Read more to learn why small businesses and startups miss out on the R&D tax credit.  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.

Contact Clarus R+D for additional information

R&D tax credit consultants: What to expect

Working with a professional R&D tax credit advisor is the best way to determine eligibility and maximize your benefit. 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 with 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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D

A majority of eligible manufacturers fail to take advantage of America’s largest tax incentive. In 2016 alone, nearly $16 billion in R&D tax credits were claimed, yet manufacturers continue to leave money on the table by not claiming the research and development tax credits made available to them. The primary reasons manufacturers aren’t claiming R&D tax credits are they either don’t know the credits exist or don’t believe they qualify to claim the R&D tax credits. Manufacturers may also be unaware of some recent changes in the R&D tax credit laws that have expanded the scope of the program so that more taxpayers are able to claim R&D tax credits than ever before. The R&D tax credit encourages innovation in manufacturing. Whether you are in the business of manufacturing a new product, or are in the business of improving the manufacturing process itself, you are likely eligible for the R&D tax credit. The best way to learn whether your manufacturing business is eligible to claim R&D tax credits is to work with an experienced and well-qualified R&D tax credit consultant. Schedule a free consultation with Clarus R+D to learn more about the benefits of the R&D tax credit program or to discuss whether your business is eligible. Clarus’ technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive.

Contact us for additional information

Manufacturers can claim R&D tax credits

The R&D tax credit is the biggest tax incentive available to manufacturers. Since its introduction in 1981, the R&D tax credit has expanded so that more and more manufacturing businesses across many industries are able to claim the tax credits. In order for your manufacturing business to be eligible to qualify for the R&D tax credit, it must engage in certain qualified research activities.

Clarus R+D has worked with manufacturers across the country to help them claim the R&D tax credit. Examples of manufacturing activities and innovations eligible for the R&D tax incentive include:

• • Innovating product development using computer-aided design tools
  • Developing second-generation or improved products
  • Designing innovative manufacturing equipment
  • Prototyping and three-dimensional solid modeling 
  • Designing and developing cost-effective and innovative operational processes
  • Integrating new materials to improve product performance and manufacturing processes
  • Designing and evaluating process alternatives
  • Achieving compliance with changing emissions laws and regulations
  • Streamlining manufacturing processes through automation
  • Improving product quality and yields
  • Reducing manufacturing times and optimizing manufacturing processes
  • Development of second-generation products
  • Product development using computer-aided design tools
  • Tooling and equipment fixture design and development
  • Designing, constructing, and testing prototypes
  • Alternative material testing
  • Evaluating and determining the most efficient flow of material
  • Increasing manufacturing capabilities and production capacities

You don’t have to be among the largest manufacturing companies to take advantage of the research and development tax credit. Small manufacturers and startups are even eligible to claim the R&D tax credit. In fact, recent changes to the applicable laws have made it easier than ever for more manufacturing businesses to take advantage of the R&D tax credit.

Learn how your business can claim the R&D tax credit

Benefits of R&D tax credits for manufacturers

The research and development tax credit is a government-sponsored tax incentive available to companies 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

Many manufacturers assume the R&D tax credit is available only to major corporations conducting tests in research laboratories. This, of course, is not the case. Businesses, including manufacturers of all sizes across many industries, are eligible for the incentive as long as they are engaged in qualified research activities. Under the current tax code, any company that develops or improves products or processes may be eligible for the credit. The number of manufacturers who engage in eligible activities is ever-increasing as are the eligible activities that qualify a business for the credit. More and more businesses are engaged in qualified research activities making them eligible for the R&D tax credit. Clarus R+D is your tax credit consultant of choice to help your business take advantage of the research and development tax incentive.

Many manufacturers are unaware of the tremendous benefits of R&D tax credits. The manufacturing expenses related to daily operations could qualify for a dollar-for-dollar tax credit towards their annual income and/or payroll tax liability, irrespective of industry or manufacturing 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.

Schedule a demo with Clarus R+D to learn more

Manufacturing and R&D tax credit eligibility

Working with a professional R&D tax credit consultant, like Clarus R+D, is the best way for you to determine your tax credit eligibility. In order to be eligible for the research and development tax credit, your manufacturing 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

Exclusions

Even if your work passes the four-part test, there are a few exclusions to the R&D tax credit. Expenses incurred under the exclusions will not qualify for the incentive. Some of these already appear in the four-part test, including the need to rely on hard sciences. The activity must take place in the U.S. and cannot include routine data collection or market research. Also, activities cannot receive funding from an unrelated third party because your company might not retain ownership of the resulting intellectual property. 

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.

Learn more about R&D tax credits

Manufacturing process: Activities that may qualify for R&D tax credits

Sales 

A sales team is on the frontline of data collection regarding new products and processes. As such, your sales team is an integral cog in the wheel of innovation. The information they collect is shared with various departments including your engineering and design teams. Those sales activities may be eligible R&D tax credit expenses you can claim.  

Design 

The time spent designing a product or innovation is going to be considered an R&D tax credit eligible activity, absent some specific exclusion. The manufacturing process begins with the product design and materials specification from which the product is made. These materials are then modified through manufacturing processes to become the required part. The design process includes design meetings as well as time spent quoting a project.  

Manufacturing Process

This is fairly straightforward. In general terms, manufacturing-related R&D encompasses improvements in existing methods or processes, or wholly new processes, machines, or systems. The time associated with those activities is going to be R&D tax credit eligible.

Quality Control

Quality control for the innovative product or process is R&D tax credit eligible.  This includes testing to ensure the product or process is free from defect and performs according to specification.  

Shipping and Package Design

If the product requires a unique container for shipping, the time devoted to designing, testing, and improving the new packaging could qualify as R&D tax credit eligible.

Contact Clarus R+D for additional information

R&D tax credit consultants: What to expect

Working with a professional R&D tax credit advisor is the best way to determine eligibility and maximize your benefit. 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 with 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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D

Getting started with your small business or startup can certainly be an anxiety-inducing venture. In general, startups face high uncertainty and, sadly, have high rates of failure. The most successful entrepreneurs take advantage of every available opportunity afforded them. One such opportunity that gives small businesses and startups a competitive advantage is the R&D tax credits program. Your small business or startup, that is not showing a profit, may qualify 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. The best way for your small business to learn more about the R&D tax credit program and their R&D tax credit eligibility is to work with an experienced and well-qualified R&D tax credit consultant. Schedule a free consultation with Clarus R+D to learn more about R&D tax credits and find out if your small business or startup is eligible to claim the credit. Clarus’ technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive.

Contact us for additional information

The R&D tax credit for small businesses and startups: profitability

Despite its well-established and successful history, countless eligible companies fail to claim the research and development tax credit every year. This is especially true for owners of small businesses and startups. Small businesses and startups may be eligible to apply up to $1.25 million—or $250,000 each year for up to five years—of the federal R&D credit to offset the Federal Insurance Contributions Act (FICA) portion of their payroll taxes each year. To be eligible, a company must meet two requirements:

1. Have less than $5 million in gross receipts for the credit year
2. Have no more than five years of gross receipts

Those taxpayers, however, might fail to consider their eligibility for the R&D tax credit program for any number of reasons.  Still, many startups don’t understand they’re eligible to claim the R&D tax 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 some of the reasons startups miss this non-dilutive funding opportunity.

Too complicated

Some entrepreneurs assume the program sounds too good to be true and, therefore, complicated. At Clarus R+D, we work with small- to mid-sized business owners to discuss the eligibility requirements, explain the benefits of the tax credit program, and offer solutions to maximize the credit.

The business has not produced any revenue

Once again, companies don’t have to demonstrate income (or pay income taxes) to qualify for the credit. Qualifying smaller companies and startups can take the benefit as a payroll tax offset, claiming up to $250,000 every year. This applies to small businesses showing less than $5 million in the credit year, with no gross receipts in the previous five years.

The business does not have any employees

Sure, using the credit to offset payroll taxes does make it seem as if you’d have to have employees to pay. While wages generally contribute most heavily to the final credit calculation, other costs, like supply expenses and contractor payments, are also eligible. Most importantly, if you do take the research and development credit as a payroll tax offset without actual payroll, you can carry the credit forward for up to 20 years.

The business doesn’t do research

This is, perhaps, the greatest misconception about R&D tax credit eligibility. You needn’t be in the business of operating a research laboratory to be eligible for the research and development credit. You don’t have to employ a team of scientists running around in lab coats either. At Clarus R+D, we partner with entrepreneurs across all industries.

The business is not successful

A business does not have to be successful to qualify for the benefit. Riskier initiatives often fail with no return on investment. Recognizing that, the federal government provides incentives like the R&D credit to lessen the burden. Consequently, you will be rewarded for facing technical challenges and pushing forward on innovative solutions. These technological breakthroughs are all part of the research and development terrain. Even if the work isn’t successful, the effort itself (and the costs associated with it) may make your business eligible to receive the credit.

Business does research but not developing anything new

The R&D tax credit is for taxpayers that design, develop, or improve products, processes, techniques, formulas, or software. It’s calculated on the basis of increases in research activities and expenditures—and as a result, it’s intended to reward companies that pursue innovation with increasing investment. R&D doesn’t have to be new to the industry. It simply needs to be new to the company, which must have activities that meet the four-part IRS test below. Read more to learn why small businesses and startups miss out on the R&D tax credit.  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.

Learn how your business can claim the R&D tax credit

Myths about R&D tax credits and profits for startups

Every year, eligible businesses don’t avail themselves of the benefits of the R&D tax credit. IRS statistics show that R&D tax credits worth over $12 billion were claimed in 2014, the latest year for which data is available. While this sounds significant, a large number of eligible entities, especially small businesses and startups with no shown profit, neglect to claim the R&D credit. One of the biggest drivers for the underutilization is likely a lack of knowledge by both taxpayers and their advisers. Many are unaware of the R&D tax credit or otherwise believe their business activities are not eligible. Some of the common myths about R&D tax credits for startups and small businesses include:

Myth #1

I don’t qualify. Many businesses perform activities that qualify for the R&D tax credit without realizing it. The R&D tax credit can be used by companies of any size in industries ranging from software development to breweries. If you do anything technology-based, improve it, and sell it to customers, you probably qualify.

Myth #2

It can only be applied to income tax. This is not true. 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. If you 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. Unused credits can also be useful upon exit.

Myth #3

The savings aren’t worth it. Are you kidding? We have many examples of companies saving tens and even hundreds of thousands of dollars with the R&D tax credit. Remember, this is a credit, not a deduction. It’s applied directly against taxes owed. Plus, our technology-driven solution simplifies the process of claiming the credit and reduces overall fees.

Clarus R+D can help provide clarification on the applicability of the research and development credit, walk you and your small business or startup team through a study and calculation, and can be there to support you in times of an audit.

Schedule a demo with Clarus R+D to learn more

R&D tax credit expansion benefits startups without profit

For years, the R&D tax credit was truly unavailable to those businesses for whom it was initially designed – innovative startups. In that the majority of startups are not immediately profitable and thus pay no federal income taxes, it was counterintuitive that our nation’s most cutting-edge companies were essentially barred from a tax incentive because they were not profitable. An important amendment—the startup provision—changed everything for startups. Beginning in 2016, startups were able to claim the credit, capped at $250,000, annually, against certain payroll taxes. This amendment was truly a game-changer for innovative entrepreneurs and their startups. 

Impact on Tax Advisors

The consequences of the amended R&D tax credit language are vast. Needless to say, this was the most significant tax legislation for the startups and their tax advisors in years. Given the breadth of the amendment, taxpayers across all industries may be eligible for a tax incentive that could make the difference between their startup surviving or not. In order to position your startup for success, it is important to work with an experienced R&D tax credit advisor who has helped other startups claim R&D tax credits. Clarus R+D specializes in working with innovative startups to help them determine their eligibility and claim their R&D tax credits.  

Learn more about R&D tax credits

R&D tax credit eligibility for startups

Working with a professional R&D tax credit consultant, like Clarus R+D, is the best way for you to determine your startup’s tax credit eligibility. In order to be eligible for the research and development tax credit, your startup or small 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

Exclusions

Even if your work passes the four-part test, there are a few exclusions to the R&D tax credit. Expenses incurred under the exclusions will not qualify for the incentive. Some of these already appear in the four-part test, including the need to rely on hard sciences. The activity must take place in the U.S. and cannot include routine data collection or market research. Also, activities cannot receive funding from an unrelated third party because your company might not retain ownership of the resulting intellectual property. 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. 

Internal Use Software

If research and development is related to internal-use software for your business, it must meet these criteria:

• Be innovative
• Result in an economically significant reduction in cost or improvement in speed
• Involve economic risk to develop
• Not be commercially available

Contact Clarus R+D for additional information

R&D tax credit startup activities and industries

With the expansion of the research and development tax credit over the years, more businesses than ever before engage in activities making them eligible to claim the R&D tax credit. If you are uncertain if your business activities qualify, contact a professional R&D tax credit advisor, like Clarus R+D, who can help. In the meantime, listed below are examples of activities that may be considered qualifying research activities: ​

• Conduct testing of new concepts and technology
• Develop prototypes and models
• Develop new, improved, or more reliable products, processes, or formulas
• Develop or apply for patents
• Add equipment that improves a process
• Streamline your manufacturing process
• Develop new software
• Design for LEED/green initiatives
• Conduct environmental testing
• HVAC concept and design
• Searching for ways to apply new research findings
• Designing product alternatives
• Conducting system and functional requirements analysis
• Utilizing integration analysis
• Conducting research aimed to significantly cut a product’s time-to-market
• Conducting research aimed to obtain more efficient designs
• Developing and modifying research methods / formulations / products
• Paying outside consultants / contractors to do any of the above activities

More traditional scientific work, like one might imagine in pharmaceutical product development, is naturally considered qualified research. What about work in other industries?  A list follows that provides examples of various industries that often engage in R&D tax credit eligible work.

• Manufacturing
• Consumer products
• Medical devices
• Software development
• Chemical
• Apparel
• Telecommunications
• Pharmaceuticals
• Food & Beverage
• Engineering
• Aerospace
• Cosmetics

Learn how your business can claim the R&D tax credit

R&D tax credit advisors for startups: What to expect

Working with a professional R&D tax credit advisor is the best way to determine eligibility and maximize your benefit. 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 with 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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D

Businesses across many industries engage in research and development (R&D) activities.  As a means to spur innovation, a federal (and often state) tax credit is available to taxpayers who engage in eligible R&D activities. Introduced in 1981, the R&D tax credit is the largest tax incentive available to taxpayers. Furthermore, its application has increased over the years so that more and more businesses across many industries are able to claim the tax credits. In order for your business to be eligible to qualify for the R&D tax credit, it must engage in certain qualified research activities. The best way to learn more about R&D activities and tax credit eligibility is to work with an experienced and well-qualified R&D tax credit consultant. Schedule a free consultation with Clarus R+D to learn more about R&D tax credits and find out if your business engages in eligible R&D activities. Clarus’ technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive.

Contact us for additional information

What is research and development (R&D)?

Research and development (R&D) includes activities that companies (taxpayers) undertake to innovate and introduce new products and services. It is often the first stage in the development process. The term R&D is widely linked to innovation both in the public and private sectors. Research and development activities serve to both protect existing jobs while creating new jobs. In addition to promoting job growth, one of the primary reasons the research and development tax credit was initially adopted was to spur innovation to ensure the United States remained competitive against global competition. R&D activities may lead to patents, copyrights, and trademarks as discoveries are made and products created. Companies across all sectors and industries undergo eligible R&D activities. Corporations experience growth through these improvements and the development of new goods and services. 

Key R&D takeaways

• R&D represents the activities companies undertake to innovate and introduce new products and services or to improve their existing offerings
• Research and development activities give taxpayers a competitive edge and can promote job growth
• Taxpayers across many industries engage in eligible R&D activities

The R&D tax credit

The Research and Development tax credit is a government-sponsored tax incentive available to taxpayers 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 incentivizes certain research activities by reducing a company’s liabilities for spending money on that research. Expenses that qualify are more comprehensive than you may think. Qualified research expenses (QREs) can include the salaries of employees and supervisors who are conducting research, supplies, and even some contractors.

Many taxpayers assume the R&D tax credit is available only to major corporations conducting tests in research laboratories. This, of course, is not the case. Businesses of all sizes across many industries are eligible for the incentive as long as they are engaged in qualified research activities. Under the current tax code, any company that develops or improves products or processes may be eligible for the credit. The number of businesses who engage in eligible activities is ever-increasing as are the eligible activities that qualify a business for the credit. More and more businesses are engaged in qualified research activities making them eligible for the R&D tax credit. Clarus R+D is your tax credit consultant of choice to help your business take advantage of the research and development tax incentive.

Learn how your business can claim the R&D tax credit

R&D tax credit eligibility

Working with a professional R&D tax credit consultant, like Clarus R+D, is the best way for you to determine your 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

Exclusions

Even if your work passes the four-part test, there are a few exclusions to the R&D tax credit. Expenses incurred under the exclusions will not qualify for the incentive. Some of these already appear in the four-part test, including the need to rely on hard sciences. The activity must take place in the U.S. and cannot include routine data collection or market research. Also, activities cannot receive funding from an unrelated third party because your company might not retain ownership of the resulting intellectual property. 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.

Schedule a demo with Clarus R+D to learn more

R&D tax credit activities and industries

With the expansion of the research and development tax credit over the years, more businesses than ever before engage in activities making them eligible to claim the R&D tax credit. If you are uncertain if your business activities qualify, contact a professional R&D tax credit advisor, like Clarus R+D, who can help. In the meantime, listed below are examples of activities that may be considered qualifying research activities: ​

• Conduct testing of new concepts and technology
• Develop prototypes and models
• Develop new, improved, or more reliable products, processes, or formulas
• Develop or apply for patents
• Add equipment that improves a process
• Streamline your manufacturing process
• Develop new software
• Design for LEED/green initiatives
• Conduct environmental testing
• HVAC concept and design
• Searching for ways to apply new research findings
• Designing product alternatives
• Conducting system and functional requirements analysis
• Utilizing integration analysis
• Conducting research aimed to significantly cut a product’s time-to-market
• Conducting research aimed to obtain more efficient designs
• Developing and modifying research methods / formulations / products
• Paying outside consultants / contractors to do any of the above activities

More traditional scientific work, like one might imagine in pharmaceutical product development, is naturally considered qualified research. What about work in other industries?  A list follows that provides examples of various industries that often engage in R&D tax credit eligible work.

• Manufacturing
• Consumer products
• Medical devices
• Software development
• Chemical
• Apparel
• Telecommunications
• Pharmaceuticals
• Food & Beverage
• Engineering
• Aerospace
• Cosmetics

Learn more about R&D tax credits

Misconceptions about the R&D tax credit

Every year, eligible businesses don’t avail themselves of the benefits of the R&D tax credit. IRS statistics show that R&D tax credits worth over $12 billion were claimed in 2014, the latest year for which data is available. While this sounds significant, a large number of eligible entities neglect to claim the R&D credit. One of the biggest drivers for the underutilization is likely a lack of knowledge by both taxpayers and their advisers. Many are unaware of the R&D credit or otherwise believe their business activities are not eligible. Other reasons taxpayers miss out in claiming the credit include:

• Lack of understanding
• Can’t monetize the credit
• Complexity of the calculation
• Cost
• Audit fear

Clarus R+D can help provide clarification on the applicability of the research and development credit, walk you and your team through a study and calculation, and can be there to support you in times of an audit.

Small businesses and startups

Despite its well-established and successful history, countless eligible companies fail to claim the research and development tax credit every year. This is especially true for owners of small businesses and startups. Small businesses and startups may be eligible to apply up to $1.25 million—or $250,000 each year for up to five years—of the federal R&D credit to offset the Federal Insurance Contributions Act (FICA) portion of their payroll taxes each year. To be eligible, a company must meet two requirements:

1. Have less than $5 million in gross receipts for the credit year
2. Have no more than five years of gross receipts

Those taxpayers, however, might fail to consider their eligibility for the R&D tax credit program for any number of reasons.  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 some of the reasons startups miss this non-dilutive funding opportunity.

Too complicated

Some entrepreneurs assume the program sounds too good to be true and, therefore, complicated. At Clarus R+D, we work with small- to mid-sized business owners to discuss the eligibility requirements, explain the benefits of the tax credit program, and offer solutions to maximize the credit.

The business has not produced any revenue

Once again, companies don’t have to demonstrate income (or pay income taxes) to qualify for the credit. Qualifying smaller companies and startups can take the benefit as a payroll tax offset, claiming up to $250,000 every year. This applies to small businesses showing less than $5 million in the credit year, with no gross receipts in the previous five years.

The business does not have any employees

Sure, using the credit to offset payroll taxes does make it seem as if you’d have to have employees to pay. While wages generally contribute most heavily to the final credit calculation, other costs, like supply expenses and contractor payments, are also eligible. Most importantly, if you do take the research and development credit as a payroll tax offset without actual payroll, you can carry the credit forward for up to 20 years.

The business doesn’t do research

This is, perhaps, the greatest misconception about R&D tax credit eligibility. You needn’t be in the business of operating a research laboratory to be eligible for the research and development credit. You don’t have to employ a team of scientists running around in lab coats either. At Clarus R+D, we partner with entrepreneurs across all industries.

The business is not successful

A business does not have to be successful to qualify for the benefit. Riskier initiatives often fail with no return on investment. Recognizing that, the federal government provides incentives like the R&D credit to lessen the burden. Consequently, you will be rewarded for facing technical challenges and pushing forward on innovative solutions. These technological breakthroughs are all part of the research and development terrain. Even if the work isn’t successful, the effort itself (and the costs associated with it) may make your business eligible to receive the credit.

Business does research but not developing anything new

The R&D tax credit is for taxpayers that design, develop, or improve products, processes, techniques, formulas, or software. It’s calculated on the basis of increases in research activities and expenditures—and as a result, it’s intended to reward companies that pursue innovation with increasing investment. R&D doesn’t have to be new to the industry. It simply needs to be new to the company, which must have activities that meet the four-part IRS test below. Read more to learn why small businesses and startups miss out on the R&D tax credit.  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.

Contact Clarus R+D for additional information

R&D tax credit consultants: What to expect

Working with a professional R&D tax credit advisor is the best way to determine eligibility and maximize your benefit. 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 maximize 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 with 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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D

If you think your company might qualify for the R&D tax credit, don’t let the potential tax savings go unclaimed — and don’t be intimidated by the thought of an R&D tax credit study or the R&D tax credit documentation requirements. Qualifying activities exist across many different industries. If you’re willing to take a look, you could uncover non-dilutive funding to reinvest in your business and fuel your innovation with these tax savings. By claiming the R&D tax credit, you have a responsibility to make sure your tax documentation is defensible. The laws and regulations require it, and the penalties for not complying can be severe. Too often, we see companies claim the R&D tax credit without creating proper nexus between expenses and projects. Thorough documentation is the answer to this issue. That’s where Clarus R+D can help. Our tax credit software automatically calculates the credit, as well as generates all required documentation. No more stress or confusion about how to properly claim R&D tax credits.

Contact us for additional information

Claiming R&D tax credits

The federal research and development tax credit has been around since 1981 but was made permanent by the PATH Act of 2015. This legislation also opened the door for small businesses that were not profitable to benefit from the credit. In addition, new offsets for the alternative minimum tax and payroll tax made way for even more companies to receive a benefit for their research activities. Generally, large companies account for a significant portion of the overall research performed, and the credit dollars claimed each year. Yet, it’s important to note that the R&D tax credit isn’t just for large companies with established R&D departments. Any company that develops new or improved products, processes, or software could qualify and be eligible to claim the R&D tax credit under the US tax code – whether developed successfully or not.  

Eligibility to claim the R&D tax credit

Regardless of industry, size, or revenue, any business that performs activities meeting the following four tests qualifies for the R&D tax credit:

1. Permitted purpose – the purpose of a qualifying project must be related to creating a new or improving an existing business component.
2. Technological in nature – work needs to rely on principles of physical, biological, or computer science or engineering.
3. Elimination of uncertainty – when work on a qualifying project began there would have been uncertainty related to your capability to create the product or improvement, the methodology you would use, or the correct product design.
4. Process of experimentation – the project must involve a process by which you tested alternatives and resolved the uncertainty above.

Learn how your business can claim the R&D tax credit

Monetizing the claimed R&D tax credit

The R&D tax credits can be used to offset:

• • Income taxes, if you are in a taxable position.
  • Alternative Minimum Tax (AMT) if you have average annual gross receipts for the prior three years of $50 million or less, and you owe AMT in the current year.
  • Employer portion of Social Security taxes up to $250,000 for each fiscal year if you are a qualified small business. This payroll tax offset allows qualified small businesses to receive a benefit for their research activities regardless of profitability.

What if I don’t have a tax liability?

If you are conducting qualified research and development projects, it’s beneficial to claim the R&D tax credit regardless of your company’s taxable income. R&D tax credits can be carried forward to offset future income tax liability. Typically, credits that can’t be used immediately will carry forward for up to 20 years. Also, companies can often claim the R&D tax credit retroactively by filing amended returns.

Can I offset payroll tax?

Qualified startups can claim up to $250,000 against payroll taxes each year. These businesses can use the claimed R&D tax credit to offset payroll taxes for up to five years, with a maximum of $1.25 million in total credits used on quarterly federal payroll tax returns. Whether or not your startup is profitable, you may qualify for the payroll tax offset if you have less than $5 million in revenue and are within five years of your first gross receipt. Also, it is important to note that unless you claim with the original filing, you will not be able to take the payroll offset.

What about the Alternative Minimum Tax?

Claimed R&D tax credits can now immediately reduce a company’s tax liability, freeing up cash that can be reinvested in the company. Companies whose R&D tax credits may have been limited by the AMT in the past can now use the R&D tax credit to fully offset AMT without regard to tentative minimum tax. Eligible small businesses are sole proprietorships, partnerships, and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years. Clarus R+D has a team of professionals to help you claim and monetize your R&D tax credit benefit.

Schedule a demo with Clarus R+D to learn more

Filing your claim for the R&D tax credit

The R&D tax claim needs to be submitted along with your annual corporate tax filing. Here is what you need to file:

• Form 6765, Credit for Increasing Research Activities.
• Form 3800, General Business Credit. This form has a line that asks for the amount of Credit for Increasing Research Activities.
• Each state will have its own form if it offers a state R&D tax credit program. If you qualify for the payroll tax offset, you will need to make sure you account for it on Form 941, Employer’s Quarterly Federal Tax Return. You will also need to fill out and attach Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities.
• Documentation requirements as stated in I.R.C. § 41

Learn more about R&D tax credits

Taxpayer documentation needed to claim the R&D tax credit

A number of factors go into claiming the credit, but the potential savings on the table make exploring the credit a worthy endeavor. The R&D tax credit may be claimed for current and prior tax years. As such, businesses need to document their R&D activities to ensure they are positioned to claim the credit. The taxpayer must document how they met the requirements to qualify for the credit and how the credit was calculated. 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

Contact Clarus R+D for additional information

Clarus R+D: What to expect

Here is what you can expect by selecting Clarus R+D as your 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 with 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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D

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.

Contact us for additional information

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.

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.

Learn how your business can claim the R&D tax credit

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.

Schedule a demo with Clarus R+D to learn more

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.

Learn more about R&D tax credits

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.  

Contact Clarus R+D for additional information

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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D

Businesses across all industries utilize the research and development (R&D) tax credit to generate tax savings. In order for a business to be eligible to claim R&D tax credits, they must conduct qualified research activities. Once a company satisfies the eligibility threshold, it needs to develop an R&D tax credit documentation requirement strategy in order to assist them in substantiating their research and development tax credit claim. An experienced R&D tax credit advisor is the best resource for businesses to assist them in claiming the R&D tax credit. Contact Clarus R+D to learn if your business is eligible to claim the tax credit and to learn how to develop a meaningful R&D tax credit documentation requirement strategy. Its technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive.

Contact us for additional information

R&D tax credit documentation requirement overview

Claiming the R &D tax credit is not so daunting for businesses that maintain proper supporting documentation of their qualified research activities. Businesses need to develop a documentation strategy to satisfy the requirements for claiming the R&D tax credits. To claim the R&D tax 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. General 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 makes claiming the R&D tax credit a much simpler process. Clarus R+D will work with you so that you are confident you are maintaining the proper documentation to help you maximize your claimed benefit.

Learn how your business can claim the R&D tax credit

Record-keeping requirements for the R&D tax credit

There’s no specific record-keeping requirement for the R&D tax credit. Per the tax code and regulations, taxpayers are simply required to retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit. This broad requirement for documentation provides taxpayers with some flexibility in documenting qualified research expenditures.

R&D tax credit documentation for qualified research

Wages

Qualified research expenses (QREs) include labor performed for qualified services—tasks performed on projects that meet the four primary qualifying criteria and aren’t specified exclusions. It’s important for a taxpayer to establish a methodology for quantifying wages related to qualified services. The preferred method for quantifying wages is a time tracking system that tracks qualified research hours to qualified projects. This enables a taxpayer to create a nexus between qualified research activities (QRAs) and QREs. There are instances when a time and tracking system is not utilized by the taxpayer. Estimates of time may be accepted. Estimation methods are permitted in cases where the sole issue is the exact amount paid or incurred in the QRA. Accordingly, taxpayers should maintain factual support for the assumptions underlying the time estimates to meet the IRS burden of proof. Taxpayers are only allowed to include taxable wages in the R&D tax credit calculation. Non-taxable items, such as 401(k) contributions, health insurance contributions, and other pre-tax benefit deductions, should be excluded. The following are examples of the types of documentation that can be used to substantiate qualified research wages:

• Employee W-2s
• Payroll registers
• Time tracking data
• Time questionnaires
• Interview notes for oral testimony
• Job descriptions
• Meeting minutes
• Documented qualified supply expenses

Supplies

The Internal Revenue Code defines qualified supplies as any tangible personal property used in the conduct of QRAs, except property of a character subject to the allowance for depreciation. Examples of qualified supplies include components used to fabricate and test prototypes, raw materials used during product or process design, or testing and scrapped material resulting from QRAs. Utility expenses are considered general and administrative expenses; however, if you can prove the research required an extraordinary amount of utilities, you can include an appropriate amount. The following are examples of the types of documentation that can be used to substantiate qualified supply expenses:

• Chart of accounts
• General ledger
• Purchase orders
• Invoices

Taxpayers should track or allocate qualified supply expenses to applicable qualified business components if possible.

Contracting

Contract research expenses can equate to 65 percent of any amount paid or incurred by the company for qualifying research activities carried out by a business or person other than an employee of the company. The actual work concerning contracted research must be carried out in the United States and its territories. Examples of contracted research expenses include the invoiced fees regarding the following:

• Engineering consultants
• Subcontractors used to operate prototype process system during development
• Contracted testing laboratories

The location of the third party is important in establishing QREs. The federal R&D tax credit requires the research and development activities to be conducted within the United States. States that offer state-level R&D tax credits require the R&D to be conducted within their respective states. All offshore R&D should be excluded from consideration. The following are examples of the types of documentation that can be used to substantiate qualified contract research expenses:

• Chart of accounts
• General ledger
• Third-party contracts
• Purchase orders Invoices
• Form 1099 (for individual contractors)

Taxpayers should track or allocate contract research expenses to applicable qualified business components if possible.

Schedule a demo with Clarus R+D to learn more

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 documentation: The IRS areas of concern

The IRS’s preferred method for capturing QREs is a project-based approach where taxpayers create nexus between QREs and QRAs. Taxpayers aren’t required to provide a factual nexus bridge between claimed QREs and specific business components as long as there’s reliable evidence to support the QREs. The creation of nexus between QREs and QRAs generally is most difficult with respect to capturing qualified wages. Taxpayers should attempt to create nexus between QREs and QRAs when possible. The use of high-level estimates can make it difficult to substantiate an R&D tax credit claim. High-level estimates can include the use of interviews to estimate R&D time percentages and judgment samples. A common example is a chief financial officer or chief executive officer making R&D time percentage estimates for everyone in the organization and not consulting with those individuals closer to the QRAs. Taxpayers should expect to retain additional supporting documentation for high-level employees involved in R&D.

The R&D tax credit calculation is a percentage of the current-year QREs over a base amount. The base amount is calculated using prior-year QREs. Taxpayers are required to maintain consistency in the calculation and must demonstrate consistency between QREs in the credit year and QREs in the base period years. For example, if a taxpayer claims a certain type of expense as QREs in the current year that it never previously treated as QREs, then it must adjust its base period QREs to reflect the inclusion of this type of expense. Taxpayers also are required to make base period adjustments for any acquisitions or dispositions made during the tax year. Acquisitions and dispositions can have a tremendous effect on the final credit result, and the IRS commonly asks about acquisitions and dispositions during exams.

Learn more about R&D tax credits

Eligibility and the R&D tax credit documentation requirements

Not only is it important to develop a documentation strategy, but it is also necessary to work with an experienced R&D tax credit advisor, 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.

Contact Clarus R+D for additional information

R&D tax credit consultants: What to expect

Whether you are in the process of developing an R&D tax credit strategy or looking for assistance in determining your eligibility, working with an R&D tax credit advisor like Clarus R+D has many advantages. 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 with 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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D

The R&D tax credit is the biggest tax incentive available to businesses. Since its introduction in 1981, the R&D tax credit has expanded so that more and more businesses across many industries are able to claim the tax credits. In order for your business to be eligible to qualify for the R&D tax credit, it must engage in certain qualified research activities. The best way to learn more about R&D tax credit eligibility is to work with an experienced and well-qualified R&D tax credit consultant. Schedule a free consultation with Clarus R+D to learn more about R&D tax credits or to discuss whether your business is eligible. Its technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive.

Contact us for additional information

Is your business eligible for the R&D tax credit?

The Research and Development tax credit is a government-sponsored tax incentive available to companies 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.

Many taxpayers assume the R&D tax credit is available only to major corporations conducting tests in research laboratories. This, of course, is not the case. Businesses of all sizes across many industries are eligible for the incentive as long as they are engaged in qualified research activities. Under the current tax code, any company that develops or improves products or processes may be eligible for the credit. The number of businesses who engage in eligible activities is ever-increasing as are the eligible activities that qualify a business for the credit. More and more businesses are engaged in qualified research activities making them eligible for the R&D tax credit. Clarus R+D is your tax credit consultant of choice to help your business take advantage of the research and development tax incentive.

Learn how your business can claim the R&D tax credit

Qualified research drives R&D tax credit eligibility

Working with a professional R&D tax credit consultant, like Clarus R+D, is the best way for you to determine your 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 a 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

Exclusions

Even if your work passes the four-part test, there are a few exclusions to the R&D tax credit. Expenses incurred under the exclusions will not qualify for the incentive. Some of these already appear in the four-part test, including the need to rely on hard sciences. The activity must take place in the U.S. and cannot include routine data collection or market research. Also, activities cannot receive funding from an unrelated third party because your company might not retain ownership of the resulting intellectual property. 

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.

Schedule a demo with Clarus R+D to learn more

R&D tax credit eligible activities and industries

With the expansion of the research and development tax credit over the years, more businesses than ever before engage in activities making them eligible to claim the R&D tax credit. If you are uncertain if your business activities qualify, contact a professional consultant, like Clarus R+D, who can help. In the meantime, listed below are examples of activities that may be considered qualifying research activities: ​

• Conduct testing of new concepts and technology
• Develop prototypes and models
• Develop new, improved, or more reliable products, processes, or formulas
• Develop or apply for patents
• Add equipment that improves a process
• Streamline your manufacturing process
• Develop new software
• Design for LEED/green initiatives
• Conduct environmental testing
• HVAC concept and design
• Searching for ways to apply new research findings
• Designing product alternatives
• Conducting system and functional requirements analysis
• Utilizing integration analysis
• Conducting research aimed to significantly cut a product’s time-to-market
• Conducting research aimed to obtain more efficient designs
• Developing and modifying research methods / formulations / products
• Paying outside consultants / contractors to do any of the above activities

More traditional scientific work, like one might imagine in pharmaceutical product development, is naturally considered qualified research. What about work in other industries?  A list follows that provides examples of various industries that often engage in R&D tax credit eligible work.  

• • Manufacturing
  • Consumer products
  • Medical devices
  • Software development
  • Chemical 
  • Apparel
  • Telecommunications
  • Pharmaceuticals
  • Food & Beverage
  • Engineering
  • Aerospace
  • Cosmetics 

Learn more about R&D tax credits

Common misconceptions about R&D tax credit eligibility

Every year, eligible businesses don’t avail themselves of the benefits of the R&D tax credit. IRS statistics show that R&D tax credits worth over $12 billion were claimed in 2014, the latest year for which data is available. While this sounds significant, a large number of eligible entities neglect to claim the R&D credit. One of the biggest drivers for the underutilization is likely a lack of knowledge by both taxpayers and their advisers. Many are unaware of the R&D credit or otherwise believe their business activities are not eligible. Other reasons taxpayers miss out in claiming the credit include:

• Lack of understanding
• Can’t monetize the credit
• Complexity of the calculation
• Cost
• Audit fear

Clarus R+D can help provide clarification on the applicability of the research and development credit, walk you and your team through a study and calculation, and can be there to support you in times of an audit.  

Small businesses and startups

Despite its well-established and successful history, countless eligible companies fail to claim the research and development tax credit every year. This is especially true for owners of small businesses and startups. 

Small businesses and startups may be eligible to apply up to $1.25 million—or $250,000 each year for up to five years—of the federal R&D credit to offset the Federal Insurance Contributions Act (FICA) portion of their payroll taxes each year. To be eligible, a company must meet two requirements:

1. Have less than $5 million in gross receipts for the credit year
2. Have no more than five years of gross receipts 

Those taxpayers, however, might fail to consider their eligibility for the R&D tax credit program for any number of reasons.  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 some of the reasons startups miss this non-dilutive funding opportunity. 

Too complicated

Some entrepreneurs assume the program sounds too good to be true and, therefore, complicated. At Clarus R+D, we work with small- to mid-sized business owners to discuss the eligibility requirements, explain the benefits of the tax credit program, and offer solutions to maximize the credit. 

The business has not produced any revenue

Once again, companies don’t have to demonstrate income (or pay income taxes) to qualify for the credit. Qualifying smaller companies and startups can take the benefit as a payroll tax offset, claiming up to $250,000 every year. This applies to small businesses showing less than $5 million in the credit year, with no gross receipts in the previous five years.

The business does not have any employees

Sure, using the credit to offset payroll taxes does make it seem as if you’d have to have employees to pay. While wages generally contribute most heavily to the final credit calculation, other costs, like supply expenses and contractor payments, are also eligible. Most importantly, if you do take the research and development credit as a payroll tax offset without actual payroll, you can carry the credit forward for up to 20 years.

The business doesn’t do research

This is, perhaps, the greatest misconception about R&D tax credit eligibility. You needn’t be in the business of operating a research laboratory to be eligible for the research and development credit. You don’t have to employ a team of scientists running around in lab coats either. At Clarus R+D, we partner with entrepreneurs across all industries. 

The business is not successful

A business does not have to be successful to qualify for the benefit. Riskier initiatives often fail with no return on investment. Recognizing that, the federal government provides incentives like the R&D credit to lessen the burden. Consequently, you will be rewarded for facing technical challenges and pushing forward on innovative solutions. These technological breakthroughs are all part of the research and development terrain. Even if the work isn’t successful, the effort itself (and the costs associated with it) may make your business eligible to receive the credit. 

Business does research but not developing anything new 

The R&D tax credit is for taxpayers that design, develop, or improve products, processes, techniques, formulas, or software. It’s calculated on the basis of increases in research activities and expenditures—and as a result, it’s intended to reward companies that pursue innovation with increasing investment. R&D doesn’t have to be new to the industry. It simply needs to be new to the company, which must have activities that meet the four-part IRS test below.

Read more to learn why small businesses and startups miss out on the R&D tax credit.  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.

Contact Clarus R+D for additional information

R&D tax credit consultants: What to expect

Working with a professional R&D tax credit advisor is the best way to determine eligibility and maximize your benefit. 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 with 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.

Learn more about R&D tax credits

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.

Schedule a call with Clarus R+D