If you are a CPA trying to provide additional value to a client or you are a tax professional seeking strategies to bolster your bottom line, claiming the R&D Tax Credit for your client or business could be a beneficial option to consider!
Whether it is your first or hundredth time claiming the R&D Tax Credit, it is important to take the time to assess the benefits and review legislative updates to any applicable Federal and State-specific tax credit programs.
All too often, CPAs and tax professionals do not pursue these valuable credits due to a lack of bandwidth or know-how, negative experiences with outsourcing in the past, or fear of triggering an audit. However, with the proper knowledge and right expertise, you can help your clients or business identify and document a sustainable research tax credit.
Should You Claim the R&D Tax Credit for your business or client?
Several factors can affect the success of claiming the R&D Tax Credit. A standard 4-part test will help determine whether you qualify for the R&D Tax Credit.
- Technological in Nature Type of Activity: The activity performed must fundamentally rely on principles of physical or biological science; engineering; or computer science.
- Process of Experimentation: The taxpayer must engage in an evaluative process that is capable of identifying and evaluating more than one alternative to achieve a result. This may include modeling, simulation, or a systematic trial and error methodology.
- Elimination of Uncertainty: The activity must be intended to eliminate uncertainty concerning the capability, method, or design for developing or improving a product or process.
- Permitted Purpose: The activity must relate to a new or improved business component’s function; performance; reliability; or quality.
Outsourcing Your Tax Credit Work
Most accounting firms rely on independent consulting firms to assist their clients with R&D Tax Credits. The IRS requires both a qualitative and quantitative analysis for a company to determine its tax credit. The qualitative analysis takes the taxpayer through a series of tests and inquiries to ensure their activities qualify as a research expense. The quantitative analysis helps identify what part of the expenses and salaries can be considered research expenditures.
In a recent article published by CPA Magazine, PMBA’s Federal Tax Credits & Incentives Leader, Peter J. Scalise, provides an update on the Federal R&D Tax Credit. The key takeaway – Valid R&D Tax Credit Claims for Refunds Must Now Include 5 Essential Pieces of Contemporaneous Documentation. Read the full article on LinkedIn or CPA Magazine.