Posted by Jeffrey M. Feingold on 03.17.14
Some companies are hesitant to utilize the R&D tax credit because they have the misconception that R&D tax credits are invisible. While this has been an issue in the past, changes in the tax code have made this a misconception. Now it is easier than ever to demonstrate to senior management the advantage of R&D tax credits.
When R&D tax credits were first introduced into the tax code in 1985, they were somewhat hidden in the financial statements in the tax line. This made it difficult for senior management to see the advantages of the tax credits and of increasing their research budgets. With changes in the tax code, R&D credits have enough earmarks of a grant that it can be accounted for above the line. This makes it more visible to senior management who has the authority to increase the budget for research and development.
Nothing speaks to upper management like hard numbers on a financial statement. In a tough economy, it can be difficult to receive additional funds for research. Companies - large and small - are sitting on their cash reserves due to uncertainty about the economy, regulations, and healthcare. By explaining how R&D tax credits can provide your company with an infusion of cash, it is easier to move management to budget additional funds for research.
Some companies assume that if you are already showing a loss or will show a loss with using R&D tax credits, that you can't use them, or it doesn't make sense to do so. This is not the case. R&D credits can be used to increase your expenses for the year in question. This will decrease the amount of revenue that you will be required to pay taxes on. It is another win for senior management. R&D tax credits do not need to be invisible. With changes in the tax code, you can demonstrate to management the advantages in increasing your research and development program and taking advantage of R&D tax credits.
Because taxes in general and R&D tax credits specifically can be a little complicated, it is best to use the services of a R&D tax specialist. They will be able to advise you on how to account for the tax credits, and if you are eligible. In today's economy, it is important to use every advantage possible when keeping the company's bottom line in the black. Utilizing R&D tax credits can be one way to do so as long as upper management is onboard. At Tax Point Advisors, you will receive a free assessment. This assessment will help you determine if you qualify for R&D tax credits as well as determine how much your company can save, and what it would cost to have Tax Point Advisors manage this process for you.