Do Companies Need to Reassess Their Innovation Execution?

bigstock Innovate Innovation Technology 121664084 e1464053317686

To execute innovation effectively, companies need to adopt new approaches to innovation, learn from their past mistakes, and set reasonable goals that they can actually achieve. However, a new Accenture survey finds that U.S. companies are struggling with various innovation pursuits – continuing a problem they have been grappling with for the past three years.

Specifically, the survey of executives and managers within 500 U.S. companies divulges that six in 10 (60 percent) said their companies do not learn from past mistakes. This is virtually double the 36 percent who self-confessed to this three years ago when Accenture last piloted a comparable survey.

In fact, approximately three-fourths (72 percent) indicate their firm’s frequently oversight opportunities to exploit underdeveloped regions or markets, versus 53 percent three years ago.  Additionally, more than two-thirds (67 percent) consider their companies as risk averse, a large increase from 46 percent publicized in the preceding survey.

Furthermore, the survey demonstrates that 82 percent disclose they do not differentiate their innovation approaches between incremental versus large-scale transformational change – meaning they use a sole “one-size-fits-all” methodology to accomplish different objectives.

Notwithstanding their companies’ innovation shortcomings, respondents are more certain on disruptive innovation than they were three years ago.  For instance, 84 percent said they believe innovation is key for their long-term success compared with 67 percent three years ago.  The same percentage of respondents – 84 percent – said they are looking for the “next silver bullet,” meaning a market-defining innovation.  Creating new products is a priority for almost half (47 percent) of respondents, an increase of 20 percentage points from three years ago.

However, just how do companies create this innovation within their own company? One way of utilizing and enhancing innovation within a firm is by investing in research and development (R&D).  Both economic theory and empirical analysis emphasize the vital position of research and development (R&D) in economic growth and innovation. R&D – which may take the structure of basic research, applied research or experimental development – fundamentally encompasses “creative work undertaken on a systematic basis to increase the stock of knowledge… and the use of this stock of knowledge to devise new applications” (OECD, 1994).

Due the contribution of R&D to productivity growth, economic performance and the achievement of social objectives, governments do have a role in encouraging the appropriate R&D levels and expenditures. In the United States, companies are granted R&D tax credits, which are tax incentives for performing qualified research (not necessarily successful) in the U.S., resulting in a credit to a tax return. Essentially, the government lets you deduct the costs of research and experimentation to develop or improve a product, formula, invention, process or technique.  Bearing in mind the broad application of the credit and recent changes to the eligibility criteria, the R&D tax credit could be a huge game changer for companies seeking to innovate. If you want to learn more about R&D tax credits, contact a Swanson Reed specialist today for further information.

Could a Sugar Tax Encourage Innovation in the United States?

drink 872590 960 720

Is it time to tackle the taxing issue of sugar with a sugar tax?

Most recently, the British government decided to institute a tax on sugar-sweetened beverages which will begin in 2018. Indeed, the trend seems to be gaining steam around the globe, with France, Belgium, Hungary, Mexico and Scandinavia already having sugar tax policies. With this in mind, the immediate question that emerges is should the United States follow the UK’s lead and have more state’s operating under a sugar tax?

In the United States, similar taxes have typically failed. Mayor Michael Bloomberg notoriously instituted a ban on selling sodas larger than 16 ounces in New York City, which was knocked down by the courts. And a soda tax for the entire state of New York was also defeated after fierce opposition from industry. Despite this, soda taxes have been successful in Berkeley, California, and most notably, in Mexico.

Ultimately, with more jurisdictions passing these kinds of taxes, we’ll gain more evidence about the efficacy. Although, evidence reveals that as long as they’re high enough, the taxes seem to be working to reduce consumption. Take another example, such as taxes on tobacco, which have been extremely effective at reducing consumption of tobacco products.

On the whole, fizzy drinks have been in slight decline in recent years, with sales in 2014 down 3.3 per cent from a high in 2011. Consumers have been swapping to mid-calorie, low-calorie and zero-calorie options and less than half of all carbonated drinks sales now going to full sugar variants. Thus, a sugar tax may just augment this trend – however, it is expected that it will also spark a new wave of soft drink innovation as well.

Indeed, innovation in sweeteners has been a disruptive force over the past few years for sugars; but it has not unseated sugar’s dominance.  Could a tax on sugary soda’s change this and act as a facilitator for innovation in this field?  Several view the sugar tax as an incentive for soda makers to innovate, research and develop more low-sugar or sugar-free options. Undeniably, there is an opportunity here for firms to really look at the design of food in relation to current health. Other industries show the potential for fundamental innovation when under fire. The most obvious examples are in the field of renewable energy, which has been developed in the face of climate change. Hybrid vehicles and solar chargers are classic examples of new income streams that arise from thinking and designing differently.

In general, a sugar tax like the British one might give food and beverage companies more of a window to radically innovate, develop and sell these newer and improved products.  In the Fast Moving Consumer Goods (FMCG) industry, food and beverage innovation is fundamentally one of the critical factors of success. Essentially, the variant of alternatives available for the beverage industry comes down to an investment in research and development (R&D) to expand the products scope. From developing and testing the beverage’s sugar formulation to improving the nutritional content, the options for innovation in this field are ostensibly broad.Fortunately, federal and state governments offer R&D tax credits to beverage companies of all sizes to help offset the expenses of R&D.

In summary, consumer attitudes towards sugar are shifting as they did towards tobacco and this supports a rethink of everything from global growth rates to investment strategies in the food, beverage and drug industries. As noted above, more countries are passing sugar taxes, which allows us to gain more evidence about the efficacy of such taxes and whether this is a feasible option for more states within the United States to adopt. In the meantime, however, the choice ultimately remains with the individual.

What do you think, could a sugar tax benefit the United States and drive innovation in the beverage industry?

Don’t Forget the R&D Tax Credit this Tax Season

CaptureS

As the days tick down until the end of tax season, some clients need a little push to get their taxes done, or at least to file for a six-month extension.

Not surprisingly, 60 percent of small-business owners say administrative burdens, like paperwork and confusing rules, are the worst part of filing — even more so than the financial cost of taxes, according to a recent survey by the National Small Business Association. Almost half of small-business owners file under extension, the survey found.

Nonetheless, there are many tax options available that may reduce the taxes you and your business owe — possibly by thousands of dollars. In this instance, is it best to pursue the advice of tax specialist to help with your company’s filing and ensuring you don’t miss out on any potential tax savings.

In particular, the R&D Tax Credit is a frequently overlooked tax benefit, with companies often mistakenly believing they don’t qualify. The government lets you deduct the costs of research and experimentation to develop or improve a product, formula, invention, process or technique. The costs of getting your own patent — including attorneys’ fees for the application — can be deducted, but not costs from obtaining another person’s patent.  Bearing in mind the broad application of the credit and recent changes to the eligibility criteria, the R&D tax credit could be a huge game changer for companies.

While the R&D deduction is relatively simple for small businesses to take, doing additional calculations to claim the “innovation” or R&D tax credit can be more complex but rewarding for entrepreneurs. The credit reduces taxes dollar for dollar, and entrepreneurs can generate the biggest credit by ramping up research activities over time.

In addition, there were a host of tax breaks that Congress included in last December’s tax extenders legislation, the PATH Act. The new rules and regulations outlined in the PATH Act have made it easier for all types of businesses to profit from the R&D Tax Credit. Start-ups and other small businesses should take distinctive note of major changes specifically intended for their advantage.  Now, start-ups (businesses with gross receipts of less than $5 million a year) will be able to take the credit, capped at $250,000 against their 2017 payroll taxes.

In addition to the direct start-up provision, starting in 2016, small businesses (businesses with less than $50 million in gross receipts) will now permanently be able to claim the R&D credit against their Alternative Minimum Tax (AMT). The removal of the AMT barrier may see a tenfold upsurge in the number of small businesses that can utilize the R&D Tax Credit. Combined, these two alterations will benefit start-ups and small businesses with approximately $2 billion in added tax savings.

Getting advice from your tax preparer is always a good thing, but the R&D Tax Credit may be outside of their normal practice. If you do claim the credit it will be beneficial to consult with an R&D Tax Credit specialist. They will help determine your eligibility, assist with confusing rules, properly prepare your claim up to IRS standards and provide guidance in the case of an audit.

Basics of Claiming the R&D Tax Credit for LLC’s

Calculate California Sales Tax Step 4 e1457332499391

A limited Liability Company (LLC) is initially treated like a sole proprietorship or partnership with an initial filing date of April 15 and an extended filing date of October 15. However, LLC’s can elect to change their fiscal year (read our post, Calendar Years vs Fiscal Years for more information on this) and to be treated like a corporation for tax purposes.

Nonetheless, with the original filing date of April 15 approaching at the end of the week, discover the basics of claiming the research and development (R&D) tax credit for LLC’s in our latest video tutorial.

Watch on Youtube: https://www.youtube.com/watch?v=TEFdmlVXsuE

Or alternatively, watch below:

Basics of claiming the R&D tax credit for LLC’s – SwansonReed

 

Discover the basics of claiming the R&D tax credit for LLC’s from a SwansonReed Specialist.

Want more quick video tutorials like this?

Check out our series so far:

 

Swanson Reed is the largest specialist R&D tax credit consulting firm in the United states.  We solely provide services related to the R&D credit and are the only firm in the United States to offer free live webinars on a daily basis. Click here for more information.

Calendar Years vs. Fiscal Years

bigstock Tax Consultant Writes Tax Time 115441898

With the filing date for the R&D tax credit quickly approaching, it is now time for companies to focus their attention on getting their claim in order.

To better understand the filing dates for each type of business, it is important to understand the difference between a calendar year and a fiscal year. Calendar years are always from January 1st to December 31st. Fiscal years can be any consecutive 12-month period, beginning on the first day of the first month and ending on the last day of the last month. Fiscal years drive tax reporting. Taxpayers pick fiscal years different from calendar years to suit their operational purposes, so they aren’t doing taxes in a period of peak activity, like Christmas time would be for retail companies.

Fiscal years that don’t run congruent to calendar years are designated by the month in which they end. For example, a fiscal year that runs from October 1, 2012 to September 30, 2013 is called “fiscal year 2013.”

Under IRS rules, a tax return is usually due on the 15th day of the fourth month after the end of the tax year. If the tax year is a calendar year, as it most often is, then the return is due on April 15, a date we are all familiar with (for corporations, the deadline is the 15th day of the third month following the tax year, or March 15 for a calendar year).

However, you may be wondering why the fiscal years matter? As noted above,  it depends on the type of business you own and your busy periods. If you have a cyclical business that has highs and lows in sales and activity, you may decide you want to have your business fiscal year be the end of the quarter after the activity has ended. This makes it easier to see how your business has done for the year.

Technically, your business can have any fiscal year you want. But the IRS has some requirements for tax years. A business taxed as a sole proprietorship (which files its business income tax return on Schedule C), must use December 31 as the business tax year. Because single-member LLC’s are taxed as sole proprietorships, they must also use a December 31 business fiscal year.

Generally, anyone can adopt the calendar year as their tax year. However, if any of the following apply, you must adopt the calendar year:

  • You keep no books or records;
  • You have no annual accounting period;
  • Your present tax year does not qualify as a fiscal year; or
  • You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations.

To find out which deadline applies to you, read our previous blog post which outlines the filing deadlines.

If you would like further information about tax lodgement or filing for an extension, please contact your  nearest Swanson Reed representative or office.

Virginia Introduces New & Improved R&D Tax Credits

CaptureTAX

Launched in 2011, Virginia’s previous research and development (R&D) program allowed an income tax credit to businesses for qualified R&D expenses for taxable years beginning on or after January 1, 2011, but before January 1, 2019. However, just recently, Virginia’s Legislature has passed Bills (House Bill 884 and Senate Bill 58) which has greatly modified the state’s existing R&D credits. Most notably, the Bill extends the expiration date of the program, increases the amount of the existing R&D credits, and creates an additional credit for major research and development expenses.

In specific, The Bills change the existing credit to:

  • Increase the existing credit cap from $6 million to $7 million, the maximum amount of tax credits cap that the Department of Taxation may grant each fiscal year;
  • Extend the expiration date from January 1, 2019 to January 1, 2022;
  • Increase the amount of credits a taxpayer may claim to:
    • 15% of the first $300,000 ($45,000) of a taxpayer’s Virginia qualified research and development that exceed a base amount; or
    • 20% of the first $300,000 ($60,000) of those expenses if the research and development were conducted with a Virginia college or university;
  • Deliver an alternative, simplified method to compute tax credits; and
  • Prohibit businesses from using the existing credit for R&D expenses over $5 million.

Moreover, for companies who do have R&D expenses of $5 million, the Bill has created a new, non-refundable credit called the Major R&D Expense Credit. This is effective for tax years beginning on or after January 1, 2016 but before January 1, 2022 and is available for taxpayers with qualified R&D expenses of more than $5 million per year. Qualifying taxpayers can use the Major R&D Expense Credit against corporate and personal income and the annual credit cap for the credit is $20 million.  In summary, the Major R&D Expense Credit is a credit of 10% of the difference between a taxpayer’s taxable year Virginia R&D expenses less 50% of the average Virginia R&D expenses incurred by the taxpayer in the prior three years. For taxpayers that did not incur Virginia R&D expenses in any of the three prior years, the Major R&D Expense Credit is 5% of the taxable year’s Virginia R&D expenses.

Unlike the regular R&D credit discussed above, which is a refundable credit, the Major R&D Expense Credit is limited to 75% of the taxpayer’s Virginia income tax liability for the year. However, any unused portion of the credit may be carried forward for 10 years. It’s important to note that a taxpayer claiming the major R&D expense credit cannot claim the normal R&D credit.

Overall,  R&D tax credits offer an opportunity for firms to leverage the role of innovation and is a vital competitive factor for companies as it lowers the effective tax rate and can refuel R&D efforts through increased cash flow. Hence, the expansion of these credits in Virginia marks an improvement on the state’s program and a commitment in increasing R&D activity. The R&D tax credit, at both state and federal levels, is an economic policy that is aimed at increasing the innovative potential of the economy – if you have any questions about either state or federal credits, please contact one of Swanson Reed’s Specialist R&D Tax Advisors.

R&D Tax Filing Date Only a Week Away!

bigstock Tax Form With The Deadline Tim 84295040

The filing dates for R&D Tax Credit and deadline submission dates for claims are fast approaching. Tax filing dates and rules are set by law so it is important to be aware of filing dates. Filing dates determine when tax returns can be amended, which opens the possibility of claiming more R&D credits. Filing a late claim could result in a missed opportunity to receive a substantial credit.

The date deadlines differ depending on the company type. Details of each of these are outlined below:

Corporations (C-Corps and S-Corps)

  • Initial filing date: 2 ½ months after the end of the fiscal year.
  • Extended filing date:  6 months after the initial filing date.
  • EXAMPLE:
    • Fiscal year end = December 31
    • Initial filing = December 31 + 2 ½ months = March 15
    • Extended filing = March 15 + 6 months = September 15

Limited Liability Companies (LLC’s)

LLC’s are initially treated like a sole proprietorship or partnership with an initial filing date of April 15 and an extended filing date of October 15. LLC’s can elect to change their fiscal year and be treated like a corporation for tax purposes. If this is the case, LLC’s will have the same filing dates as Corporations.

Individuals, Sole Proprietorship and Partnerships

Individuals, sole proprietorships and partnerships have the same initial filing date of April 15 and an extended filing date of October 15. Individuals receive “flow-through” benefits from S-Corps and LLC’s.

To simplify this, we’ve provided the table below for quick reference:

Company Type Original Filing Date Extension Filing Date
  • Single-member & multi-member LLC’s, Individuals, Partnerships, Estates and Trusts
 April 15, 2016 October 15,2016
  • Corporations (S,C)
 March 15, 2016 September 15, 2016

If you would like further information about tax lodgement or filing for an extension, please contact your  nearest Swanson Reed representative or office.

Six Tips to Reduce Your Audit Risk with an R&D Tax Credit Claim

bigstock Research and Development on Fo 121044080

New rules and regulations have made it easier for all types of businesses to profit from the R&D Tax Credit, but there is always a possibility that the credit will provoke an IRS audit. Even hearing the word audit can spur risk aversion in clients, therefore it’s best to be prepared as possible to ease your mind.

To elaborate, an R&D tax credit audit is an examination of compliance with the relevant R&D tax credit legislation, and it consists of a thorough review of the claim from both a scientific/technological and a financial/tax technical perspective.

In light of this, we’ve collated six key tips to assist companies in reducing their audit risk.

1. Recognize what qualifies as research

To start with, you need to confirm whether the activities undertaken are eligible as “qualified research.” IRS has a four-part test for this, the four parts to consider are:

  • Is your research technological in nature?
  • Does the research have a permitted purpose?
  • Are you working toward the elimination of uncertainty about a product?
  • Are you engaged in the process of experimentation?

Ultimately, you must be able to explain scientifically why this is an authentic experiment whose outcomes you were testing in good faith. Firms should especially watch out for “R&D” that is actually just standard practice.

2. Collect and organize your documentation

Documentation is the basis of the R&D Tax Credit, so having your records organized and readily available is essential. Appoint a staff member who has access to the documents to collect the data throughout the R&D project. That way one person will be responsible for having everything in once place in case an audit occurs. Read up on what documents are needed to claim.

3. Get familiar with the Audit Techniques Guides

The Audit Techniques Guides are published by the IRS to train IRS employees, but are available to the public to help provide a better understanding of the audit process. There is a large assortment of guides, each one tailored to a specific audit concern. There are four different ones for the R&D Tax Credit alone that can be found on the Research Credit page of the IRS website. Be aware that some guides are industry specific so make sure to choose the one tailored to your business. Even skimming one will help prepare you for what to expect.

4. Reinforce high deductions with proof

One of the biggest triggers for a tax audit is having high deductions compared to other taxpayers within your same tax bracket. You can account for high deductions by attaching a receipt or other documentation to your tax return. While above average deductions can trigger an audit, being proactive and providing proof will reduce your chances of being audited. Don’t be afraid to deduct expenses that are legally deductible. Instead, make sure you can justify the amount of your deduction. Write checks whenever possible and keep a copy of the cancelled check in your records.

5. Double check your maths

Addition and subtraction errors are common reasons for tax audits. They’re also easy to fix and avoid. Check and double check your numbers to make sure you’ve included the right ones.

6. Consult a specialist 

Getting advice from your tax preparer is always a good thing, but the R&D Tax Credit may be outside of their normal practice. If you do claim the credit it will be beneficial to consult with an R&D Tax Credit specialist. They will help determine your eligibility, properly prepare your claim up to IRS standards and provide guidance in the case of an audit.

Swanson Reed is familiar with the review process and knows what the government expectation is in terms of technical supporting documentation. Therefore, we can manage expectations in order to take the pressure and stress out of the equation. For more details on this service, visit our Audit Advisory page.

Claiming the Texas R&D Tax Credit through the Franchise Tax Credit

bigstock Uk Tax Form With Calculator Ly 113610671 e1457318844977

The State of Texas adopted Texas House Bill 800 (House Bill 800) providing state tax benefits for engaging in qualified research expenditures in the State of Texas beginning January 1, 2014. In specific, taxpayers in Texas can claim the R&D Tax Credit to offset a portion of their franchise tax or use it towards a sales and use tax exemption on the purchase or lease of depreciable tangible personal property used in qualified research in Texas.

Our latest video tutorial covers the process of claiming the Texas R&D Tax credit through the Franchise Tax Credit and highlights the applicable periods for claiming the credit.

Watch below, or alternatively, watch on YouTube at: https://www.youtube.com/watch?v=e9YF1W6wksE

Claiming the Texas R&D Tax Credit through the Franchise Tax Credit – SwansonReed





This video covers the process of claiming the Texas R&D Tax credit through the Franchise Tax Credit.

Want more quick video tutorials like this?

 

Check out our series so far:

 

Swanson Reed is a specialist R&D tax firm and has helped many clients across a diverse range of industries. Contact us for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.

How Imperative is Water Innovation?

highspeed photography 1004250 960 720

highspeed-photography-1004250_960_720Undeniably, water is indispensable to life and the nation’s social, economic, and environmental well-being. For more than a century the United States’ h20 system has been one of the most reliable in the world. Today, it provides sufficient water to support over 315 million people, almost 55 million acres of irrigated farmland, and a $16 trillion economy. Yet the sector faces increasing pressures.

In particular, growth in population and the economy, along with urbanization and land-use changes, are threatening both water quality and the ability to meet demand. Looking to the future, climate change is expected to further stress water-systems in large parts of the country. In fact, according to the United Nations, 1.8 billion people will live in regions that face “absolute water scarcity” by 2025.

Solutions to the country’s growing water challenges lie, in part, with the development and adoption of new innovative technologies. The importance of water-related innovations has been realized by policy makers in recent years and is evident by its increasing inclusion in policy and research agendas and international discourse. As a result, federal and state research & development (R&D) tax credits are available to support the commercialization of advanced water technologies and potentially solve the growing worldwide crisis.

Indeed, innovative technologies will provide a partial solution to problem. The biggest challenge for both researchers and businesses trying to bring innovations to market lay in funding their projects. Making use of both federal and state R&D tax credits can help innovations come to market and address the water shortages the United States faces both now and in the future. Therefore, in order to further boost innovation in this vital sector, Swanson Reed has partnered with AccelerateH20 to assist companies with accessing the benefits of state and federal based tax incentives. Within the water industry, the federal and Texas state R&D Tax Credit laws apply to businesses that are performing eligible R&D activities, including participation in AccelerateH2O organized pilots and demonstration.

If you would like to learn more about water technology R&D tax credits, check out our AccerlateH20 page or  get in touch with us today by contacting one of our offices.