Posted by William Mehi on 11.13.24
If you knew you could save your business hundreds of thousands of dollars by doing what you already are doing, wouldn’t you jump at the chance?
Most companies are completely unaware that they can save significant money – even up near the seven-figure range – simply by applying for credit for activities related to research and development (R&D) they already are doing. In fact, most of our clients claim a gross credit of 10 percent of their R&D spend.
As we’ve addressed in previous blogs, more than 14,000 companies apply for federal R&D tax credits annually, yet that figure represents less than 33% of qualifying companies. That leaves a large pool of untapped dollars—dollars that you could reinvest in your business’ growth. What’s more, most states offer R&D tax credits, and that can significantly reduce a company’s state income tax burden.
Qualifying Activities
Qualifying activities are far more wide-ranging than most business owners think. While research labs and scientists might come to mind when thinking of R&D, it’s better to think in terms of activities that improve processes or products, or result in alternatives to current processes. That can include innovation, design improvements and greener ways of doing things.
Tax Point Advisors’ clients have claimed anywhere from a low six-figure credit amount up to a high six-figure credit, and even some seven figure credits. The following examples represent some of the results we have achieved on behalf of our clients:
Manufacturing / Custom Job Shop
Qualifying Activity: In its custom work, this company builds a prototype, modifies and re-engineers as needed, and then manufactures the end product. The company continuously refines its processes to improve products and production processes and to reduce costs.
Results: Tax Point Advisors estimated a mid six-figure credit range for this company during the assessment phase, but we were able to find 16% more credits than the high end of the original estimate. Read the full success story.
Construction
Qualifying Activities: In designing and engineering mechanical systems, this world-class mechanical construction firm develops custom solutions for its clients. It continuously seeks to devise and implement innovative ideas utilizing new technologies in the electrical field.
Results: The firm was able to claim credits in excess of $1 million after Tax Point Advisors determined that the company could go back to several closed years and carry forward credits without having to amend any of the closed year returns. Read the full success story.
Contractor
Qualifying Activity: In designing and engineering electrical systems, this leading electronics, electrical and telecommunications contractor continuously seeks innovative ways to utilize new technologies in the electrical field. Specific qualifying activities include electrical system concept and design, BIM modeling, value engineering and design for LEED/green initiatives.
Results: Tax Point Advisors determined that the contractor could go back to certain closed years and carry forward R&D tax credits. This resulted in an additional $300,000 in credits above the original estimate. Read the full success story.
Software Development
Qualifying Activity: Companies that create software are often excellent candidates for the R&D tax credit—to remain competitive they are constantly developing and implementing new releases. This company focuses on new and innovative electronic pricing tools through the development of new software packages that interface directly with client webpages and the internet.
Results: Tax Point Advisors helped this software development company claim $566,000 in federal and state tax credits. Read the full success story.
Now that the federal R&D tax credit has been made permanent, many companies – including small and midsize firms – can plan ahead with even more inventive ways to strategically plan, qualify and report their R&D expenses to qualify for the credit.
Find Out if Your 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 company qualify for major cash-saving tax credit opportunities. Any engineering activity must meet the four-part test to qualify for R&D tax credits.
Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.
