Posted by Jeffrey Feingold on 08.07.24
Federal and state tax credits are available to a host of industries for activities that are deemed pertinent to research and development (R&D). The enactment of the Protecting America from Tax Hikes (PATH) Act of 2015 made federal R&D tax credits permanent and expanded the incentive to include more businesses. While most CPA firm leaders are aware R&D tax credits exist, they either lack the knowledge or manpower to get their clients involved in the process. This is understandable—many firms lack the expertise to perform tax credit studies, and it can be far more cost-efficient to outsource the effort to a skilled R&D expert.
Yet, many of the activities your clients already perform on a daily basis qualify R&D credits, and if you don’t offer this attractive tax credit to your clients, someone else likely will. R&D tax credits present an outstanding opportunity to offer your clients a value-added service. By partnering with an R&D expert, you can offer the service without burdening your staff with time-intensive documentation.
As a CPA and business advisory firm, you offer services to your clients that help them minimize their tax liability and grow their business. R&D tax credits present an opportunity for you to help them do both. When a client is able to receive credit for the activities they are already performing, they can put those dollars back into further growing their business. And when you are able to identify such tax-saving opportunities, you further build the trust your clients have in your firm and open the door to attracting new clients.
Which Industries Qualify?
Contrary to a common misperception, R&D tax credits are not limited to scientists, medical researchers and those wearing white lab coats. In fact, many of the activities conducted by your clients in many industries – such as manufacturing, construction, engineering, architecture and many more – do indeed qualify, and the benefit can mean hundreds of thousands of dollars in tax savings. This is a money-saving opportunity overlooked by many companies simply because they don’t understand the tax credit is available to them—or they misunderstand its intent.
Reinvesting in Client Growth
Think of it this way: CPA firms provide Type 1 and Type 2 services. The first type includes all of the services clients need and would rather not pay for—yet they must have them to be in compliance with regulations. Type 2 includes services clients need and are willing to pay for—especially when they see the difference these services bring to their bottom line. As a Type 2 service, R&D tax credit studies offer an opportunity to make a real difference for your client by identifying a source of alternative savings. At the same time, by building an R&D initiative, CPA firms are identifying opportunities to generate non-traditional income for their own bottom lines.
Less than 33% of companies that qualify for the federal R&D tax credit actually utilize it.
There is increasing competition among firms offering R&D services, ranging from Big 4 firms to those that offer the services as a stand-alone service. Wouldn’t you rather offer these services to your clients before someone else does? By doing so, you will bring your clients alternative savings that they may never have considered. R&D tax credit services make sense for your clients, and they make sense for your firm.
A word about prospects: If you can demonstrate real tax savings to prospective clients – by offering them services they don’t receive from their current CPA, you will have a far greater chance of attracting them as a full-service client.
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 below.
This blog was coauthored by Jeffrey Feingold, founder and managing shareholder of Tax Point Advisors, Inc.
