Is it Too Late to Claim the R&D Tax Credit?
For companies engaging in eligible qualified research activities, the research and development (R&D) tax credit serves as a catalyst to drive innovation. The tax credit can be used to offset payroll or income tax liability and, therefore, offers a tremendous benefit for businesses eligible to claim the credit. What happens, however, when tax deadlines have come and gone and your business failed to claim the R&D tax credit? All hope is not lost – you can still file your claim for the credit via an amended return. Don’t lose thousands of dollars in unclaimed credits by thinking it’s too late to claim the R&D tax credits to which your business is entitled. Schedule a free consultation with Clarus R+D to learn more about R&D tax credits and discuss whether your business qualifies. Its technology-driven solution empowers companies to fuel their growth with America’s largest tax incentive.
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Why are businesses late claiming the R&D tax credit?
You and your team are in the business of innovation. Through no fault of your own, you haven’t worked with an experienced and well-qualified R&D tax credit advisor because you didn’t even know that your business was eligible to claim research and development tax credits. Now that you know your business engages in qualified research activities and is eligible to claim the credit, you need to know how to claim those credits you thought were potentially lost. 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.
Why businesses claim 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 to claim the R&D tax 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 that engage in eligible activities is ever-increasing as are the eligible activities that qualify 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 R&D tax credit consultant of choice to help your business take advantage of the research and development tax incentive.
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Claim the R&D tax credit before it is too late
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. 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 a nexus between the expense and qualified project.
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It is not too late to claim the R&D tax credit for your business
Before trying to claim those credits you thought were lost, 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.
The purpose of the activity or project must be to create new (or improve existing) functionality, performance, reliability, or quality of a business component. A business component is defined as any product, process, technique, invention, formula, or computer software that the taxpayer intends to hold for sale, lease, license, or actual use in the taxpayer’s trade or business.
Elimination of Uncertainty
The taxpayer must intend to discover information that would eliminate uncertainty concerning the development or improvement of the business component. Uncertainty exists if the information available to the taxpayer does not establish the capability of development or improvement, method of development or improvement, or the appropriateness of the business component’s design.
Process of Experimentation
The taxpayer must undergo a systematic process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer’s research activities. Treasury Regulations define this as broadly as conventional implementation of the scientific method to something as informal as systematic trial and error process.
Technological in Nature
The process of experimentation used to discover information must fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. A taxpayer may employ existing technologies and may rely on existing principles of the physical or biological sciences, engineering, or computer science to satisfy this requirement. Research activities that qualify for R&D tax credits must be conducted in the U.S. If your business does any of the following, it likely qualifies for the R&D tax credit:
- Develops or designs new products or processes
- Enhances existing products or processes
- Develops or improves upon existing prototypes and software
Clarus R+D will work with you to help you understand what is considered qualified research for purposes of determining R&D tax credit eligibility.
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Claim the R&D tax credit for your business
A number of factors go into claiming the credit, but the potential savings on the table make exploring the credit a worthy endeavor. 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:
- 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
- Other documents a company produces throughout the regular course of business
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R&D tax credit consultants: What to expect
Whether you are planning to claim your credits in your current filing, or need to amend a prior tax year filing, here is what you can expect by selecting Clarus R+D as your R&D tax credit consultants:
- Clarus R+D provides a team of professionals with expert credentials able to answer all your R&D tax credit questions.
- Our proprietary software streamlines R&D studies which maximizes your ROI.
- Clarus has expert knowledge of the IRS regulations relating to the research and development tax credit, IRC Section 41, as well as the regulations pertaining to state-specific research and development credits.
- Clarus has extensive experience in recognizing qualified research activities and expenditures.
- Our time-proven methodology has yielded maximum benefits to our clients.
- The Clarus team has helped hundreds of clients claim millions in R&D tax credits.
- We place emphasis on helping growth businesses take advantage of the tax incentive.
- Clarus does the work for you; our web-based app allows you to enter information at your own pace.
- We have extensive IRS and state audit experience and provide our clients 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.
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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.