R&D Tax Credit FAQs and Misconceptions
May 16, 2019
Has your company missed out on potential R&D tax credit opportunities on previously filed tax returns? Do you think because your employees are not in lab coats and using beakers that you do not qualify for this governmental incentive?
See below for the most frequently asked questions about R&D tax credits and misconceptions about the credit that could be preventing you from benefiting from one of the most lucrative tax credits offered by the United States Government:
- My company does not perform research and development activities in the scientific, lab-sense, therefore I cannot benefit from this credit.
If there are any technical-like employees (i.e., developers, engineers, scientists, researchers), and they are creating new and/or improved products, processes, techniques, or software in the United States, you may benefit from the R&D tax credit. Withum provides a no-obligation complimentary assessment with our expert team of R&D professionals whereby you can arrive at the viability of an R&D tax credit study and its potential monetary benefits through a brief 30 minute discussion.
- My company is a startup and does not have income tax liability – how can I benefit from a tax credit?
With the introduction of new R&D tax law in 2016, so long as your company meets the requirements of being a “qualified small business”, you can potentially claim the R&D tax credit against the employer portion of payroll tax, regardless of whether or not you pay income taxes. Additionally, if you foresee yourselves coming out of taxable losses in the foreseeable future, it may make sense to perform an R&D credit study, as R&D tax credits can be carried forward for up to 20 years.
The requirements to meet the qualified small business standard are that:
– You cannot have had gross receipts of any kind in a taxable year preceding the 5-taxable year period ending with the taxable credit year. (i.e., if you are calculating a 2018 R&D tax credit, you cannot have had gross receipts earlier than 2014); AND
– You cannot have had gross receipts greater than $5 million in the taxable credit year.
- R&D tax credit studies are long and cumbersome – I don’t have the bandwidth or internal resources to dedicate in assisting with a formalized study.
Our team here at Withum creates a simple, streamlined approach that aims to minimize the internal participation needed to substantiate your credit claim. It is our aim to maximize your credit claim with the least amount of intrusion on your and your worker’s day jobs.
- My R&D spend is flat, or even declining. Thus, I am ineligible for a credit for increasing research activities.
You do not necessarily need to increase R&D spend from the previous year to benefit from the R&D tax credit. In fact, your spend can be level or even less than the previous year’s spend to benefit from a tax credit.
- My company utilizes a Professional Employment Organization (PEO), who handles our payroll functionality. This will limit my ability to take an R&D tax credit.
Withum has worked with many of the nation’s top PEO firms and since the introduction of the payroll-tax offset in 2016, we have serviced many of our R&D tax credit clients who utilize the services of a PEO. Using a PEO does not hinder your ability to take an R&D tax credit.
The R&D tax credit is designed to apply to a wide range of taxpayers across various industries. Please feel free to contact Withum’s R&D tax credit specialists, Kevin McNulty, and Tyler Collins for more information or a complimentary assessment.
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