Posted by Jeffrey Feingold on 02.14.24

The wireless communications industry has been research-driven for the past 20 years. The future of each company depended and continues to depend on their R&D staffs. The Information and Communication Technologies (ICT) have driven innovation around the world even affecting our social behaviors. Few, if any, industries have been and are so competitive. Product cycles are short and fast and driven by innovation. Having enough money to drive the research is crucial for them. This makes tax breaks like R&D credits even more important.

The R&D tax credit

The federal government encourages this research by providing tax incentives like the R&D tax credits. Many states also have tax credits available. These credits can save hundreds of thousands of dollars in taxes that can be used to move the company forward. The R&D Tax Credit is one of the most significant tax incentives available.

The benefits of this credit are numerous:

• The R&D Tax Credit is not a tax deduction. It is a bottom-line, dollar-for-dollar credit against income tax due.
• Businesses can claim R&D Tax Credits for any open tax year (generally 3-4 years) and in some cases for prior years, as well.
• Federal R&D Tax Credits can be carried forward for 20 years.
• Businesses that claim the R&D Credit see instant earnings-per-share benefits.

What qualifies for the R&D tax credit?

Over the years, the R&D tax credit legislation has become better defined and more inclusive. Many things are included now that weren't included originally. The tax credits are available for more than just research in a laboratory or new patented products. They apply to processes and methods that are new to a company, but not necessarily new to the industry. This gives businesses more possibilities for claiming this credit.

Things the wireless communications industry should claim:

Here are examples of things that may be eligible for R&D tax credits. See your CPA or R&D tax credit specialists (like Tax Point Advisors) for details on whether you can claim your specific deductions or not.

• Software development—for external sales and products to generate revenue
• Replacement of networks and platforms with newer technologies
• Enhanced security infrastructure
• Improvements in fraud control
• Things that support a broader network service access
• New functionality that creates a competitive edge.
• Advances in artificial intelligence
• Advances in calculation engines, modeling, statistical analysis
• New data warehousing
• Storage and retrieval techniques that expand on the volume limits
• Software that is patentable.
• Improvements in number portability
• New services such as video, music, SMS, chat
• Improved roaming
• Technology behind multiple business lines

Determining the cost of R&D

It is often difficult to determine the true cost of R&D because of the way the project accounting systems are set up. Many companies do not capture the costs for the projects that include personnel, contractor fees, direct support or high-level personnel who work on the research project. It can be quite beneficial to have an experienced, highly qualified third-party (like Tax Point Advisors) hold technical interviews and find documentation that supports claims for federal and state R&D Tax Credits. Only a third of eligible companies claim this deduction because of the fear of an audit. With proper documentation, there is nothing to fear. Tax Point Advisors has industry-leading audit success, having never had a tax credit refused under audit.