Archive for Rachel Bishop

Understanding The Alternative Simplified Credit Calculation For R&D

Understanding The Alternative Simplified Credit Calculation For R&D

The Research and Development (R&D) Tax Credit is a valuable incentive offered by the US government to encourage innovation. However, calculating this credit can involve complex formulas and historical data analysis. This is where the Alternative Simplified Credit (ASC) method comes in, offering a streamlined approach for qualifying businesses.

Traditional vs. Alternative Simplified Credit Calculation

The Regular Historical method for calculating the R&D Tax Credit involves a complex formula that requires the calculation of a fixed base percent using information most companies do not have (1984-1988 financial information). The ASC method offers a simpler alternative, particularly for companies that don’t have extensive R&D history or lack the resources for a detailed analysis. Here’s what you need to know:

  • Eligibility: The ASC method is available to all companies with QREs in the current tax year and the previous three tax years. Exceptions do apply for any previous year of the three prior years with no QREs.
  • Calculation Steps:
    1. Identify Average QREs: Calculate the average of your qualified research expenses from the preceding three tax years. Or, zero if you do not have a prior three years of qualified expenses.
    2. Apply Base Percentage: Multiply the average QREs by 50%.
    3. Determine Creditable Excess: Subtract the result from Step 2 (base amount) from your current year’s qualified research expenses.
    4. Apply Credit Rate: Multiply the creditable excess by 14%.
Benefits Of The ASC Method
  • Simplicity: The ASC method requires less data and offers a straightforward calculation approach.
  • Reduced Time and Costs: Businesses can save time and resources compared to the traditional method.
  • Accessibility: The ASC method makes the R&D Tax Credit more accessible to smaller companies or startups.
Considerations Before Using The ASC Method
  • Potential Benefits: With a detailed estimate analysis, both methods can be evaluated. If the proper documentation is available, the most advantageous method will be suggested. When engaged, we will document accordingly.
  • Businesses with significant and consistent R&D expenses might benefit more from a detailed analysis.
  • Professional Guidance: Regardless of the chosen method, seeking the advice of a qualified tax professional is recommended to ensure you maximize your R&D Tax Credit potential and comply with regulations.
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Four Mistakes You Might Be Making On Your R&D Tax Credit Claim

Four Mistakes You Might Be Making on Your R&D Tax Credit Claim

Are you making the most of your R&D tax credit claim? Here are four common mistakes that businesses often make when it comes to claiming their R&D tax credits.

1. Documentation Deficit: Leaving Money On The Table

Robust documentation is the backbone of a successful claim. Keep detailed records of your project objectives, methodologies, challenges encountered, and results achieved. Think meeting notes, technical reports, prototypes, and even emails discussing the innovative aspects. Without solid proof, your claim risks crumbling under scrutiny.

2. Casting A Wide Net: Not All Costs Are Created Equal

While your entire R&D project might seem worthy of a reward, the R&D tax credit isn’t a blanket solution. It specifically targets the innovative aspects, not routine business activities. Common mistakes include claiming marketing costs, routine tasks like quality control, or expenses incurred outside the eligible claim period. Scrutinize your project expenses and isolate the specific portions related to genuine R&D activities. Only those qualify for the credit.

3. Underestimating The “R” In R&D

Not all projects with a science twist automatically qualify for R&D tax credits. Remember, the “R” stands for research, not routine development. Your project should involve overcoming technological or scientific uncertainties, leading to advancements in your field. Simply improving an existing product or process might not be enough. Be prepared to demonstrate the innovative elements and technical challenges tackled within your project.

4. Going Solo When the Stakes Are High

Navigating the R&D tax credit landscape can be complex, especially for intricate projects or businesses unfamiliar with the process. While venturing solo might seem tempting, seeking professional advice can be invaluable. Experienced R&D tax advisors can maximize your claim by identifying all eligible expenses, ensuring compliance, and minimizing the risk of errors or rejections. Their expertise can translate into significant financial gains and peace of mind.

R&D Tax Credits With Source Advisors

Claiming R&D tax credits can be a game-changer for your business, fueling further innovation and boosting your bottom line. By avoiding these common pitfalls and seeking expert guidance when needed, you can ensure your claim journey is smooth sailing.

At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and determine any state R&D tax credit availability.  Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.

Want To Speak With Source Advisors, Contact Eric Larson For Introductions.

Written by | Posted in TaxConnections

4 Mistakes You Might Be Making On Your R&D Tax Credit Claim

4 Mistakes You Might Be Making On Your R&D Tax Credit Claim

Are you making the most of your R&D tax credit claim? Here are four common mistakes that businesses often make when it comes to claiming their R&D tax credits.

1. Documentation Deficit: Leaving Money On The Table

Robust documentation is the backbone of a successful claim. Keep detailed records of your project objectives, methodologies, challenges encountered, and results achieved. Think meeting notes, technical reports, prototypes, and even emails discussing the innovative aspects. Without solid proof, your claim risks crumbling under scrutiny.

2. Casting A Wide Net: Not All Costs Are Created Equal

While your entire R&D project might seem worthy of a reward, the R&D tax credit isn’t a blanket solution. It specifically targets the innovative aspects, not routine business activities. Common mistakes include claiming marketing costs, routine tasks like quality control, or expenses incurred outside the eligible claim period. Scrutinize your project expenses and isolate the specific portions related to genuine R&D activities. Only those qualify for the credit.

3. Underestimating The “R” In R&D

Not all projects with a science twist automatically qualify for R&D tax credits. Remember, the “R” stands for research, not routine development. Your project should involve overcoming technological or scientific uncertainties, leading to advancements in your field. Simply improving an existing product or process might not be enough. Be prepared to demonstrate the innovative elements and technical challenges tackled within your project.

4. Going Solo When The Stakes Are High

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Written by | Posted in R&D Tax Credit Claims • TaxConnections

4 Mistakes You Might Be Making On Your R&D Tax Credit Claim

4 Mistakes You Might Be Making On Your R&D Tax Credit Claim
1. Documentation Deficit: Leaving Money on the Table

Robust documentation is the backbone of a successful claim. Keep detailed records of your project objectives, methodologies, challenges encountered, and results achieved. Think meeting notes, technical reports, prototypes, and even emails discussing the innovative aspects. Without solid proof, your claim risks crumbling under scrutiny.

2. Casting a Wide Net: Not All Costs are Created Equal

While your entire R&D project might seem worthy of a reward, the R&D tax credit isn’t a blanket solution. It specifically targets the innovative aspects, not routine business activities. Common mistakes include claiming marketing costs, routine tasks like quality control, or expenses incurred outside the eligible claim period. Scrutinize your project expenses and isolate the specific portions related to genuine R&D activities. Only those qualify for the credit.

3. Underestimating the “R” in R&D

Not all projects with a science twist automatically qualify for R&D tax credits. Remember, the “R” stands for research, not routine development. Your project should involve overcoming technological or scientific uncertainties, leading to advancements in your field. Simply improving an existing product or process might not be enough. Be prepared to demonstrate the innovative elements and technical challenges tackled within your project.

4. Going Solo When the Stakes are High

Navigating the R&D tax credit landscape can be complex, especially for intricate projects or businesses unfamiliar with the process. While venturing solo might seem tempting, seeking professional advice can be invaluable. Experienced R&D tax advisors can maximize your claim by identifying all eligible expenses, ensuring compliance, and minimizing the risk of errors or rejections. Their expertise can translate into significant financial gains and peace of mind.

R&D Tax Credits with Source Advisors

Claiming R&D tax credits can be a game-changer for your business, fueling further innovation and boosting your bottom line. By avoiding these common pitfalls and seeking expert guidance when needed, you can ensure your claim journey is smooth sailing.

At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and determine any state R&D tax credit availability.  Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.

Would You Like An Introduction To Rachel. Contact Eric Larson, Source Advisors.

Written by | Posted in TaxConnections

Understanding The R&D Tax Credit And How To Claim It

Understanding The R&D Tax Credit And How To Claim It

The R&D tax credit is a valuable incentive provided by the government to encourage businesses to invest in research and development activities. It is a tax break that rewards companies for their innovation and technological advancements.

So, how does the R&D tax credit work? Essentially, it allows eligible businesses to claim a tax credit against their qualified research expenses. These expenses can include wages, supplies, and even contract research costs. By claiming the credit, businesses can reduce their overall tax liability, freeing up funds that can be reinvested back into their R&D efforts.

Now, let’s explore the benefits of claiming the R&D tax credit. Firstly, it provides a significant financial boost for businesses, particularly those engaged in innovative activities. The credit can result in substantial tax savings, allowing companies to allocate more resources towards research and development.

In addition to the financial advantages, the R&D tax credit also enables businesses to enhance their competitiveness. By investing in research and development, companies can develop new products, improve existing ones, and gain a competitive edge in the market. This credit encourages businesses to stay at the forefront of technological advancements, fostering growth and innovation.

Furthermore, the R&D tax credit can positively impact your business by stimulating job creation. As companies invest in R&D activities, they often need to hire skilled professionals to support their research efforts. This leads to job growth and contributes to the overall economic development of the business and the community.

Step-by-Step Guide to Claiming the R&D Tax Credit

Understanding the process of claiming the R&D tax credit is essential to ensure you receive the maximum benefit. Here is a step-by-step guide to help you navigate through the claiming process:

  1. Evaluate your eligibility:
    Determine if your business activities qualify for the R&D tax credit by reviewing the IRS guidelines and criteria.
  2. Identify qualifying activities and expenses:
    Identify the specific research and development activities and related expenses that qualify for the tax credit. This may include wages, supplies, and contract research expenses.
  3. Document your R&D activities:
    Maintain detailed records of your R&D activities, including project descriptions, timelines, and documentation of technological uncertainties and experiments conducted.
  4. Calculate the credit:
    Calculate the R&D tax credit using the appropriate method, either the Regular Credit or the Alternative Simplified Credit (ASC), based on your business size and financials.
  5. Prepare and file your tax return:
    Complete the necessary tax forms, such as Form 6765, and include the R&D tax credit calculations and supporting documentation with your tax return.
  6. Engage in an audit defense strategy:
    Prepare for potential audits by ensuring your documentation is thorough and accurate. Seek guidance from R&D tax credit experts to minimize any potential risks.
Working with R&D Tax Credit Experts

Claiming the R&D tax credit can be complex, especially if you are unfamiliar with the intricacies of tax regulations. Collaborating with R&D tax credit experts can streamline the process and maximize your benefits. These professionals have the expertise and experience to:

  • Identify eligible activities and expenses: R&D tax credit experts can help you identify all qualifying activities and expenses, ensuring you don’t miss out on any potential credits.
  • Optimize credit calculations: By leveraging their knowledge of tax laws and regulations, experts can help you accurately calculate the R&D tax credit to maximize your benefits.
  • Prepare and defend your claim: R&D tax credit experts can assist in preparing your tax return and supporting documentation to withstand any potential audits or inquiries.

By partnering with R&D tax credit experts, you can navigate the complexities of the claiming process with confidence, ensuring you receive the full benefits you deserve.

Have a question? Would you like an introduction to Rachel Bishop?

Contact Eric Larson for an immediate introduction or make a request at this link: https://sourceadvisors.com/tax-connections-contact/ 

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Qualifying Expenditures For The R&D Tax Credit

Qualifying Expenditures For The R&D Tax Credit

Qualifying expenditures for the R&D tax credit include salary and wages, supply costs, computer rental or lease, and contractor costs.

Salary & Wages

There are generally three categories of employees performing research:

  • Employees that perform Direct research. This includes people specifically performing the activities, (researchers, engineers, CAD associates, project managers, etc.) and is the core of the credit.
  • Employees that Directly Supervise research. This includes anyone who is directly supervising the employees doing the direct research.
  • Employees that Directly Support research. This includes anyone who is directly supporting research efforts. For example, let’s say a researcher has a direct assistant who is strictly taking notes and accumulating data. Their time assisting the direct researcher is also included. Similarly, a person testing prototypes and first articles would also be considered direct support.
Supply Costs

If you are prototyping and testing materials, the cost of those materials can be included. For example, the materials associated with prototype builds are research costs as are the costs of materials used in the evaluation of new formulations of beauty products can be included as supply costs.

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IRS Extends R&D Tax Credit Claims Transition Period

IRS Extends R&D Tax Credit Claims Transition Period
What Does the IRS Extending the R&D Tax Credit Claims Transition Period Mean?

The IRS extended the transition period for taxpayers to perfect their refund claims for R&D Tax Credits through January 10, 2024. Taxpayers are now provided 45 days to perfect a research credit claim for a refund prior to the IRS’s final determination on the claim, according to the IRS.

The transition period was initially listed at 30 days and was set to expire on January 10, 2023.

An R&D tax credit provides businesses with a tax benefit for conducting qualified research activities. When submitting an R&D claim for refund, it’s essential to provide specific details and supporting information.

Information Required for Submitting an R&D Tax Credit Claim

According to the IRS, to claim a Section 41 R&D tax credit refund, taxpayers are required to provide the following information:

  • Identify all business components to which the R&D credit relates to for that tax year
  • Identify all qualified research activities performed, name the individuals who performed each activity, and list the information each individual aimed to discover
  • Provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year

Taxpayers can submit their R&D tax credit claim by attaching IRS Form 6765 Credit for Increasing Research Activities to their amended return and a statement with the above information. The above information may sound like a lot, but with the proper assistance, it is very manageable.

Benefits of Claiming the R&D Tax Credit

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