Many companies that otherwise would qualify for valuable research and development (R&D) tax credits never bother to apply for them. What would cause a business owner to leave thousands or even millions of dollars on the table? The culprit is often the federal government’s requirements for the documentation of a company’s qualifying activities. While the need for documentation is certainly instrumental to the IRS’ approval process, the lack of understanding about what documentation entails needlessly keeps many out of the R&D credit arena.
Michigan House lawmakers took significant steps toward enhancing the state's economic landscape by advancing a comprehensive package of economic development bills to the Senate. This legislative suite is designed to implement a variety of financial incentives, including tax credits, tax exemptions, and grants aimed at supporting businesses throughout the state. Among the key components of the package is a proposed research and development tax credit, which aims to encourage businesses to increase their investment in R&D activities. This initiative would create a state-level tax credit that would be administered by the Michigan Department of Treasury. Currently, while research and development tax credits are available at the federal level, approximately 37 states have established their credits that align with federal criteria. Michigan's proposed credit is set to follow similar qualifying standards, focusing on a company's expansion of its research and development expenditures within the state. Eligibility will primarily depend on the potential for job creation, economic impact, and technological advancements.
Contrary to popular belief, a company does not have to manufacture an end product to qualify for tax incentives. Companies in the metal fabrication industry develop significant research and development (R&D) processes and process systems—activities that could qualify for valuable federal and state R&D tax credits.
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.
Does your manufacturing business resolve technological challenges through the innovative use of products and processes? Many manufacturers do not realize the R&D tax credit extends beyond basic research to include applied research.
Have any of your current clients constructed, purchased, expanded or remodeled real estate? If so, they may be eligible for ten, or even hundreds of thousands of dollars in tax savings through a cost segregation study. Tax Point Advisors works with CPA firms and business owners to coordinate cost segregation studies, to uncover potential tax savings and significantly increase cash flow through reclassification and depreciation of properties.
Innovators. Problem solvers. Creative thinkers. Engineers are often described by these attributes, and many of the activities they perform on a daily basis may qualify for valuable research and development (R&D) tax credits.
How do you know which of your clients (or prospects) are likely candidates for federal and state R&D tax credits? IRS code changes have broadened the definition of qualifying activity—and keep in mind that over 70% of states now offer a credit, adding value to the consideration of an R&D tax credit study.
Whether you are a CPA firm with qualifying clients or a business applying directly for tax credits, it is valuable to have the guidance of a professional firm that can offer full audit representation. Here are some best practices you should consider in seeking representation.
Contractors can gain considerable benefits through federal and state research & development (R&D) tax credits. Knowing the specifics about eligibility, which party has rights and risks and how the credits are calculated can go a long way in maximizing your tax savings.
