How to Explain the Value of the R&D Tax Credit to Your Clients

How to Explain the Value of the R&D Tax Credit to Your Clients

Posted by on 09.30.19

Every company in the United States is continuously looking for ways to save money and expand business, while also improving their bottom line. Many businesses do not realize there are research and development (R&D) tax credits that can help with these advancements. Businesses can save significant money simply by applying for credit related to the R&D they are currently performing on a daily basis. Using your R&D tax credit knowledge, you can then offer these specialty services to your clients. You can help with the process of capturing the correct R&D documentation throughout their daily operations and all future projects.

The R&D Tax Credit is a Benefit to Your Clients

Federal research and development (R&D) tax credits can deliver an immediate and significant benefit to your clients as a result of the innovative activities they are performing. The tax credit originally pertained to scientific research expenses, such as those occurring in a laboratory setting. Subsequent modifications have simplified the credit and made it available to a wider variety of businesses, including small businesses and new start ups.  The activities your clients conduct on a regular basis may qualify for valuable R&D tax credits. These tax credits represent a powerful financial advantage to businesses in a wide range of industries across the U.S., reducing tax liabilities and allocating cash back for reinvestment or other needs.

R&D tax credits can immediately benefit your clients in several ways:

  • A source of cash for reinvestment or other needs within the company
  • Significant reduction to current and future tax liabilities
  • Credits can carry forward up to 20 years
  • Offset Payroll Liability

How Your Clients Can Qualify

The activities and associated expenditures of a company can qualify for the R&D tax credit if the activities meet the four-part test established by the IRS:

  1. Qualified Purpose - The purpose of the research must be to create a new or improved product, process, or formulation, resulting in increased performance, function, reliability or quality. 
  2. Technological in Nature – The research must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science. 
  3. Elimination of Methodology or Capability Uncertainty – Activities must overcome some technical challenges that involve optimal design or methodology or create capability uncertainty 
  4. Process of Experimentation – Experimentation can be demonstrated through test batches, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result. 

Prepping Your Clients’ Activities When Qualified

The proper identification, quantification, and documentation for qualifying research activities and associated expenditures towards the R&D tax credit requires a thorough review of a company’s personnel and projects undertaken.  Given the significant funds available in the form of R&D tax credits, it is worth exploring if your clients qualify. Once you help establish the process to capture all this information, it will become a constant part of your clients’ business processes.

To learn more about the benefits of R&D credits, read some of our success stories.

Download our free e-book: A CPA's Guide to Building a Viable R&D Tax Credit Niche

Tax Point Advisors understands R&D tax credits and the regulations to confirm if your clients processes or product improvements qualify. For more information, call us at (800) 260-4138, or please leave us a message below.

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