Research and Development Credits - Not Just for Lab Costs!
The R&D Credit is an incentive for companies that are looking to make something new or better. Companies that utilize a process of testing and experimentation to remove technical uncertainty could benefit from a credit on the expenses they incur for these activities. Although the credit has been in existence for some time, Covid-19 may be presenting additional opportunities to expand upon the credit or claim for the first time. From new work in a lab for a vaccine, upgrading web-based capabilities for online platforms and sales, re-coding of an existing website, developing new internal-use software to accommodate more work-from-home and remote capabilities, to switching manufacturing operations to making masks and ventilators or other products; COVID-19 could provide new or expanded opportunities to claim these credits.
A review of R&D activities including conversations with those directly involved in the research and development activities is conducted to substantiate the requirements of claiming the credit. Documentation is then obtained to support wage expenses for those completing qualifying activities, supply expenses used or consumed within the R&D activities, and the cost for any outside contractors used to facilitate the research. Once all of the documentation is obtained, the credit can be calculated for use on your tax return. Substantiation and documentation of this credit is crucial as the IRS and state departments of revenue have scrutinized these computations and credit claims in years past.
By identifying quantifying expenses, additional tax benefit can be generated by claiming the credit. Most states also have a version of an R&D credit that can be claimed for qualifying work completed in that state. If you are considered a start-up, there may be an opportunity to utilize the credit against payroll taxes.
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The Lurie Difference: A Streamlined Process
Lurie’s Specialty Tax Services advisors offer unique tax savings and reduction strategies for businesses and their tax concerns. The team works closely with you and your service partners to provide counsel and execution on matters that extend far beyond compliance. This close collaboration provides not only coordinated, seamless service with specialists who have deep expertise, but also delivers true dollar cost savings. Here is what to expect:
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Growth above $25M in gross receipts; change in operations, procedures, or expansion of locations or personnel while already completing a calculation; haven’t refreshed or reviewed calculation in some time
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Capitalization requirement of businesses over $25M of additional costs to ending inventory
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