Posted by Jeffrey Feingold on 09.12.16
The federal research and development (R&D) tax credit is often regarded as the domain of large or high-tech companies due to confusion about the complexity of the necessary documentation and qualification procedures. However, companies of all sizes may qualify and benefit significantly.
How do you know which of your clients (or prospects) are likely candidates for federal and state R&D tax credits? IRS code changes have broadened the definition of qualifying activity—and keep in mind that over 70% of states now offer a credit, adding value to the consideration of an R&D tax credit study.
CPA firms should begin the niche-building process by mining their own databases for clients whose activities can potentially qualify for federal and state R&D tax credits. Most CPA firms would be astonished at the number of clients in their own databases that have qualifying activities, and many of them are not aware of the incentive. Certain industries are known for the great number of R&D activities they conduct. As you look at your database, think in terms of clients that innovate or improve products and services, conduct research or improve systems.
Industries commonly known to conduct these activities include, but are not limited to:
If your firm is committed to building out an R&D niche, determine how many clients you have that fit into these categories. Then tap into the expertise of either a CPA advisor or a R&D tax credit specialist to review these client files and test the viability of your clients leveraging tax credits.
In building a target list for R&D services, be sure you don’t overlook your referral sources. Attorneys, financial service providers, architects and other service companies all work with clients of their own who conduct activities that qualify them for R&D credits. It is worth taking the time to see whether they are taking advantage of them. An added benefit is that you will be doing your referral sources a great service—they will be heroes in the eyes of their clients when they find extra sources of dollars to put back into growing their businesses.
Take a look at the companies in your geographic market that you would like to have as clients. Might your prospects conduct qualified R&D activities that make them eligible for the credits? When you offer a service that is unique to your firm, you might just make them interested enough to find out more about your other services. When your firm is capable of impressing a prospect of a service they both need and want, it raises a bit of healthy anxiety, and they will likely be interested in your other services as well.
Find Out if Your Clients’ Activities Qualify
The R&D tax credit can be a lucrative incentive for innovative businesses. Given the new permanent nature of the tax credit, now is the time to consider whether activities performed by your clients qualify for major cash-saving tax credit opportunities.
Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with CPAs and their business clients who may qualify for R&D tax benefits. For more information, read our e-book: A CPA's Guide to Building a Viable R&D Tax Credit Niche, contact us at (800) 260-4138, or please leave us a message.
This blog was coauthored by Jeffrey Feingold, founder and managing shareholder of Tax Point Advisors, Inc. and Jay Nisberg, Ph.D., an internationally recognized consultant to professional services organizations and head of the strategic advisory board for Tax Point Advisors, Inc.