Claiming Research and Development Tax Credits for Your Ohio-Based Company

If you’re looking for an immediate cash flow for your company, you should investigate the opportunity that you may have overlooked when you filed your corporate tax returns in the past. Whether your Ohio-based company is small or medium-sized, you may qualify for research and development tax credits that can provide you with the cash that you need to expand your company or secure its financial stability.     Many companies self-eliminate their claims by assuming that they aren’t big enough or the return won’t be significant enough to make a difference in their claim. Knowing that you can recover 6.5 cents for every dollar that you spend on research and development activities may be the incentive that you need to partner with a team of professionals that can find tax credits to which you are entitled.

Do Your Business Activities Qualify?

Educating yourself on some of the activities in which your business can engage to qualify for R & D tax credits is an important first step. Ask yourself if your business does any of the activities listed below:

  • Develops new products, software, techniques, formulas
  • Improves current products, formulas, techniques
  • Creates more reliable products
  • Develops prototypes
  • Designs tools, molds, jigs or dies
  • Applies for patents
  • Tests for quality certification
  • Tests new concepts

If your company does any of these operations, you may qualify for lucrative R & D tax credits.

Do You Have Documentation?

You’ll want to ascertain the types of expenditures that your company has made relating to research and development, its supervision, and the technical support that was provided. Did you pay salaries and wages to employees who participated in the research done by your company? Did you pay contractors or other technical experts for their assistance during the research process? You may want to review your financial reports to determine what costs can be associated with R & D in your business so that when you find a qualified team to assist you, you’ll be able to present credible documentation for your costs and expenses.

The Team with Whom You Should Partner

As a successful entrepreneur, you know the accuracy that is required and the records that are demanded when you are dealing with the IRS, the U.S. Treasury, or the State of Ohio; your documentation must be prepared with a commitment to excellence. At Swanson Reed, our team of professionals will provide you with forms and documents that are prepared specifically in accordance with tax rules, regulations, and laws appropriate to your Ohio-based company.   Our team is experienced, confident in our tried and trusted strategies, and professional in our presentation of the finished result for you and your Executive Team. Our experts can manage all facets of your R & D tax credit claim from start to finish.

Claiming research and development tax credits can be the catalyst that your business needs to take production to the next level and out-perform your competition. Partnering with the best will bring the results that you expect and deserve.

Making R&D Legislation Work for Your Ohio Business

Although the federal R&D (research and development) credit expires at the end of a given calendar year, Congress has extended legislation as a matter of course more than a dozen times since 1981. And, although various administrations have added to or subtracted from definitions of who qualifies and who doesn’t, the literal “bottom line” is that this credit seems to have an indefinite shelf life. If you do business in Ohio — and if you’ve never taken advantage of this benefit— you may want to think in terms of delving into the wonderful world of R&D.

Building a Better Mousetrap

Think your business doesn’t do anything that you could claim a research credit for? Think again. As an old proverb says, “Build a better mousetrap and the world will beat a path to your door.” Now, you may not be in the mousetrap business — but does any aspect of your company’s day-to-day activity improve upon an already-established practice or procedure? If so, you may have some tax relief coming.

You don’t have to invent from scratch to be inventive, and you don’t have to be doing groundbreaking research “where no man has gone before” in order to qualify as performing research. If your sales people work at new sales techniques that increase your growth…if your customer-service folks learn about the competition in order to highlight your product’s superiority…or if you really are building a “better” anything, you can apply for R&D credits to offset your corporate taxes.

Getting Specific

In terms of Ohio businesses, this benefit is called the Ohio Research and Development Tax Credit; it’s a nonrefundable credit against the Commercial Activity Tax (CAT). If you qualify for federal R&D tax credits under Section 41 of the Internal Revenue Code, you qualify for this credit as well, in that wages, supplies and other company expenses qualify as well as contract expenses.

Calculating it works like this: over the past three years, average your qualified research expenses; this becomes the basis upon which you can figure what you can claim this year, which is seven percent of the amount over that. The good news is that any unused credits can be carried forward for as much as seven years. The even better news is that you don’t need to worry about any special applications or pre-approvals to claim this credit; it can be part of your normal business tax return.

Caution: Potential Tax Traps Ahead

The particulars of any extension are mainly the items in question; the extension itself, being as popular an item as it is with business, is still likely to pass — but it’s likely to have retroactive effective dates that can have “ripple effects” carrying through into the next taxable years. Also, keep in mind that at the state level, credit expiration dates are different than they are on the federal level…so make sure there are no calendar “gotchas” that can sabotage your claim.

Maintain your process and documentation levels — even if the federal rules may still be “up in the air.” It’s the safest way to ensure you gain the maximum benefit with minimum hassle. Finally, be aware that state R&D credits are tied to state budgets — so you may not know your true tax status until your state has determined its budgetary credit limitations. In case of a limited “pool” of credit available, it’s first-come, first-served, so file your claims in a timely manner.

Ask an Authority

Dealing with business and corporate tax law is a complex process, and a business owner can’t be expected to be on top of it without sacrificing something else…like running his or her business. This is where the services of an expert business-tax consultant can be invaluable; don’t hesitate to seek one out.

New York: Startup Friendly, R&D Welcome

If you’re starting a new business in 2014, you may want to head toward New York for several reasons. Thanks to START-UP NY, you can run that business tax-free for 10 years. That means no business, corporate, state or local taxes, sales taxes, property taxes, or business fees. But what if you’re already operating a business in New York and you don’t qualify for all that tax-free startup “swag”? Not to worry: you’re still eligible to benefit under Treasury rules by claiming various tax credits for your business, among them the R&D credit.

The State of the Union…R&D Tax-Wise

Lobbyists representing companies of all sizes and scopes have long asked Congress and the IRS for expanded R&D credits; sometimes these credits broaden, and sometimes they contract, depending on the administration. Suffice to say that if the IRS was completely cooperative with the wishes of businesspeople across the U.S., the country as a whole would have the finest R&D tax credits in the world!

In the meantime, states have stepped up to the plate and enacted their own R&D credit allowances, dangling incentives in front of both startups and relocations.

In some locales, businesses have been able to completely negate their state income tax liabilities with generous R&D credits. And this is good for more than just a given company’s bottom line: generous tax benefits help turn around sagging economies and provide work for thousands of university graduates in technical areas. After all, what’s a more classic picture than the dedicated scientist, decked out in his/her lab coat and working on the next big invention?

The Rising Tide that Raises All Boats

In a word, the R&D tax credit is a “jobmaker” that has a great ripple effect: when a startup gets the kind of financial boost that New York gives it, it has more cash to invest back into the business for expansion, innovation, and more job creation. Bloomberg refers to R&D credits for startups as a “double-barrel benefit”— no surprise, as the National Bureau of Economic Research indicates that the biggest “engine” for job growth is new business. It’s a chain reaction of the best possible kind.

The First Link in the Chain

Many businesses unwittingly cheat themselves out of this R&D benefit by not pursuing it in the first place — out of a mistaken belief that they don’t qualify. The good news is you qualify if you’re doing research and experimentation to develop a new process or product or refine an existing one. That covers a broad range of companies, business models, and industries. You don’t need to invent the wheel — but if you’ve found a better way to keep those wheels rolling, you might have a nice tidy claim, indeed.

Make Sure of the Numbers

Treasury regulations are sticklers for documentation, so make sure you’re accurately tracking your costs and expenses for any research your company does. When it comes to the IRS, the burden of proof is on you as a taxpayer. Have sufficient information on hand when you submit your claim so that the IRS doesn’t have wiggle room for questions; that’s the safest way to avoid a credit being disallowed or, worse, being subject to an audit. In this respect, if your business uses project-based accounting, you might have an easier time matching activities to costs than a cost-center-based business; however you do it, though, have methods in place for both quantifying what you spend and explaining why it qualifies for a credit.

Whichever Path You Take…

Whether you’re taking advantage of New York’s startup-friendly business climate or perhaps realizing for the first time that this R&D credit is for you, it’s wise to consult a professional business and corporate tax advisor. That way, you’re positioned in the best possible way to maximize your benefits, increase your cash flow, and grow your business along with enhancing the economy in your state.

It’s Not Smart Playing Chicken with the Research and Development Tax Credit

Perhaps one of the least understood tax breaks available to companies that are involved in everything from investigating new patents to improving manufacturing processes have at their disposal is a little-known and often misunderstood tax credit, known as the Research and Development Tax Credit. Because this credit costs the US government millions of dollars in what would otherwise be collectible revenue, it is a political hot potato, which seems to get punted between the President and Congress on an ongoing basis. Currently, there is no law on the books for 2014 which allows for this credit. Many members of Congress want to make this tax credit part of a comprehensive overhaul of the entire tax code. In the meantime, companies both large and small are wondering what they can expect this year.

Covering a Broad Range of Activities

One of the great benefits of the Research and Development Tax Credit is that it covers a broad range of activities. Activities such as new product development, patent efforts, computer modeling, quality assurance, development of prototypes and even product improvements and the search for more efficient processes all fall into this category. The payroll cost for a wide variety of people involved in these activities is allowable. It doesn’t have to necessarily be technicians in white lab suits. It could be workers on the factory floor and even their supervisors. Currently, companies can take a credit up to 6 ½ cents for every dollar spent on these activities. While the impact on a company that is involved in these types of activities can be substantial, sometimes allowing for an after-tax profit, the cost to the government is also substantial. That is one of the reasons it remains one of the paramount legislation and congressional matters. If it is reenacted, which is highly likely, they will have to find either new sources of revenue to replace it or cut expenses somewhere in the federal budget.

New York State’s R&D Credit

With one of the lowest corporate tax rates in the Northeast, New York State has attracted its fair share of companies looking for a highly qualified workforce as well as a business friendly environment. Like many states, New York has its own formula and program to reward companies that are involved in research and development. Its formula is simple: companies get to take a 9% credit against any building or tangible personal property that meets the basic guidelines. However, in any given year, the company has to decide whether to take the R&D credit, or the alternative Investment Tax Credit. Additionally, new companies can receive a refund of any unused credit. For any company, any unused credits can be carried forward for up to 15 years.

In an effort to encourage investment in emerging technologies, New York State also offers what is known as the Qualified Emerging Technology Company Capital Credit. It rewards investors who fund companies that are forward thinking and hold the promise of breakthrough developments. There are two benchmark rates:

  • A credit of 10% for any investment that is held for a minimum of four years, up to a maximum of $150,000 per taxpayer.
  • A credit of 20% for any investment that is held for a minimum of nine years, up to a maximum credit of $300,000.
  • These credits are not refundable, but any unused portion can be carried forward indefinitely, until it is used up.

The Research and Development Tax Credit in a Nutshell

If you’re a small to mid-sized company in New York, chances are that you have overlooked the research and development tax credit for which you can qualify. You don’t have to have an on-site laboratory or dynamic research underway to claim this credit; the one thing that you should have is a basic knowledge of how to qualify for this credit and a professional team by your side to help you navigate the regulations that you will find along the way. If you employ engineers in your company or if your business meets a list of other criteria, you should investigate this exceptional way to recover some of your initial costs for starting your business in New York.

Tax Credits Are Attractive to Your Business

The credits have been simplified in recent years so that you and your Executive Team can take advantage of them and reinvest some of your funds in your company’s growth and financial stability. You can claim research and development tax credits for the current tax year and the three years prior to it. If you have an engineer in your business you probably have costs that you could successfully capture with guided assistance from a trusted team of professionals. Along with some other criteria mentioned below, if you research the process of getting a patent and actually acquire one, this activity qualifies as a research and development expenditure.

Documentation is Important

As with any other aspect of your business operations, documentation is excellent evidence of the research and development that your company is doing. You should gather data while the research is underway whether you have a formal plan or not. Keep all diagrams, schematics, and time sheets for the employees who work on your projects. It’s also important to record the percentage of time that your employee is engaged in the process; you will want to claim his entire salary for credit in this case. Make sure that your documentation is accurate, recorded on company letterhead, and stored in a secure location for future reference.

The Four Part Test

The IRS has developed a test that will help to qualify your New York-based company for R & D tax credits; after you explore the criteria and how your business operations compare to the list, you should consider actually claiming the R & D tax credit for your company. The four parts to consider are:

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

Once you determine that your company will qualify for R & D tax credits, it’s time to find a trusted partner that can work diligently on your behalf to find the amount of credits that you deserve.

As with all legislation and congressional matters and especially with the IRS, you must have a team committed to honesty, integrity, and one that will be knowledgeable about the laws and regulations in New York that govern your claims. If you partner with our professionals at Swanson Reed, you’ll get transparency, insightfulness, and a strong work ethic all in one experienced package. We’ll work to deliver high-caliber results which will bring you the tax credits that you deserve and need for future growth and expansion.

R&D Tax Breaks Are Not Just For The Big Boys

Many companies are missing out because they are assuming that the R&D tax benefits are only available to the larger companies who have huge research budgets and large laboratories. This is a misconception and one that needs to be clarified as many smaller businesses are missing out on large tax breaks that they could be enjoying and reinvesting in their company.

What Is the R&D Credit?

It is a tax break that was brought in by the US government back in 1981 in order to provide an incentive for companies to perform ground-breaking work and make technological gains that would provide benefits for society at large. It has, over the many years that it has been in place, been the topic of many legislation and congressional matters. This has a lot to do with the confusion that arose over who was actually eligible and what was defined as research. There have subsequently been many court cases involving the IRS seeking clarification on exactly this subject.

Who Can Claim It?

Any New York based company who passes the eligibility rules defined by the IRS can make a claim for R&D Credit. It is a complex area and it is advised that any business who is considering making a claim discuss their tax affairs with a professional and qualified agency such as Swanson Reed who can make an assessment of exactly what your company is entitled to. Many companies miss out on dollars to which they could well be entitled purely because they do not realize that the work  they do can be interpreted under the rules as relevant research and development.

Changes In Progress:

There are currently proposals in place to make the whole R&D tax incentive area much clearer and easier to understand. The IRS has been made aware via several court cases that there is confusion over the current definitions that makes it difficult for US companies to know where they stand in relation to the taxation of R&D. Whilst the IRS denies that the changes broaden out the definition, it is felt by many professionals in the area that the changes will make it easier for many companies to get the tax breaks which they are entitled to.

Make sure that your company based in New York is not one of those missing out. Give your company the best chances and take professional advice about what you need in order to make a claim. Swanson Reed has a Contact Form which you can complete and return to start receiving valuable guidance from a committed firm which has your best interests at heart.

Determining R&D Tax Credit: What Does it Entail, and What Can You Expect?

In the United States, recent changes have made it much easier for different companies to avail of research and development tax credits and incentives. But somehow, there has been a mistaken assumption that only big corporations and biotech and pharmaceutical firms can take advantage of determining R&D credits. The fact of the matter is that any firm, big or small, can benefit from research & development tax credits and incentives at the federal and state level. As long as they can prove that they have incurred expenses and have engaged in activities related to research and development, they can apply for credit.

Even public sector firms can benefit as well. As we know, public sector firms are those which provide a service to or outsource a product or service to the government. This can range from public transport companies supplying trains for the general public’s use to IT companies developing software and programs which government institutions can benefit from, and a host of others. There are also those which are classified as publicly owned companies which function for commercial profit but which also follow set criteria and operate under the standards and goals set by the government.

Determining if you are qualified for research & development tax credit

So if your enterprise can fall under the public sector, you can also take advantage of R&D tax credits if you have qualified research expenses. The next question is, how do you know what qualifies as R&D?

There is a simple four-part test for this which will tell you if the research that you have done or are doing qualifies. First of all, research that is done for a specific purpose may qualify for tax credit. Secondly, research that is done in order to eliminate uncertainty also qualifies. Thirdly, research that is done following a set experimentation process, and fourthly, research done that is technological in nature will also qualify for R&D tax credit. Once you have determined that your company’s R&D activities fall under this criteria, then you can proceed.

What does not qualify for research & development tax credit?

However, there are also certain research & development activities that do not qualify for tax credit. This would include research which is done after a product or service has already been commercially launched; research done after the production of a particular component; research done in order to duplicate an existing component of the business; and reverse engineering, among others.

Determining R&D expenses which qualify for tax credit

In the course of your R&D activities, it is only natural that your enterprise will incur expenses related to this. These expenses which may be eligible for tax credit include the salaries you pay for employees conducting research in-house; the purchase of supplies that include tangible property (but not land); contracts for research done by a third party/parties; and other basic payments related to research.

The next step is determining the calculation of the credit you can expect to receive. While this may be a bit more complicated, you can always seek advice and assistance today from R&D tax specialists like Swanson Reed, which has a wealth of knowledge and experience in all matters related to R&D tax credits and incentives in the US.

How to Determine Your Eligibility for R&D Tax Credit

There is a common misconception that only companies and enterprises engaged in manufacturing and processing, or healthcare and the health sciences, can benefit from research & development tax credits.

History has shown that companies from a variety of industries can take advantage of R&D tax credits as long as they have proven to have engaged in approved research and development activities and have incurred qualified research expenses (QRE).

While companies in the manufacturing and processing industry have traditionally been able to benefit more from tax credits on their research & development activities, more and more enterprises in different industries, such as oil and gas, healthcare, IT, and agriculture and farming have been able to claim tax credits in recent years.

Take, for instance, the agricultural and farming industry. If you have an enterprise which falls under this sector, you can apply for tax credit if you engage in research and development activities with an aim to make your business grow and improve its products and services. So how do you know if you qualify? A simple four-part test will tell you.

How to determine your eligibility for research & development tax credit

  1. If you have done or are doing research with an aim to create or develop a product, technique, process, invention, or formula that will improve reliability, cost, functionality, or performance, then you may qualify for R&D tax credit. For example: if you are in the midst of developing a more effective harvesting system for your crops by creating a new and improved machine, or if you are trying to enhance your field irrigation system, then this can be classified as research done to improve a process and technique.
  2. If you are engaged in research activities which have a technological nature, then you may also be eligible. This means that you are doing research which makes use of the hard sciences (mathematics, physics, biology, etc.) rather than the soft sciences, such as humanities or the social sciences.
  3. If your research activities are done in order to eliminate any technical uncertainties, then this also makes you eligible for R&D tax credit.
  4. If your research activities are done following a set experimentation process, with theories and testing, for instance, then this adds to your eligibility for tax credit.

Keep in mind, though, that your enterprise needs to pass these four criteria, and not just one or two.
Once you have determined that you pass all the requirements that constitute qualified research, then you can move on to the next step: calculating your credit.

It is also important to remember that R&D tax credit is different for each state. The details and requirements for a state like Texas, for example, are different from other states like California, which also has a robust farming and agricultural industry. You can determine your eligibility and what you can expect with R&D tax credit by consulting a research & development tax specialist.

With expert help, the entire process of determining, computing, and filing for research & development tax credit and incentives is made much simpler – and a lot more effective and hassle-free than before.

Why It Is Easier Than You Think To Get The R & D Tax Credit

There is a bit of a myth that in order to receive the governments R&D Tax Credit you need to be a supersized company with a massive research and development budget which employ hundreds of people in white coats. This is entirely not the case and this tax credit is of growing importance not just to the larger Texas companies, but to small companies and new start-ups too.

It is all in the Interpretation:

In previous times it has been harder for companies to gain and keep the tax incentive due to the onerous nature of the paperwork and evidential responsibilities that go alongside it. Changes and clarifications of the regulations and rules in recent times have allowed the interpretation of what can be seen as research and development to become wider and allow more companies to apply and successfully gain the tax credit. Industry as a whole benefits from this and none more so than the life sciences and healthcare areas. The opportunities for research and development in this industry are vast and it is time to take advantage of this tax credit.

How Do You Apply?

In order to receive the R&D tax credits, a company must meet the criteria which have been specified by the government. Looking at these criteria you can see why many companies just assume that they do not apply to them, but it is important that you speak to a company like Swanson Reed who can interpret these rules and who have expertise in the area, as the likelihood is that projects that your life sciences and healthcare company undertake come within the four part test and you could be receiving additional assistance with your taxes.

It’s an Ongoing Process:

Due to the nature of the R&D tax credits, a company should have an ongoing strategy for dealing with them. Because they have now been given a Tier 1 status it is likely that many companies receiving the credits will be audited. It is important to have the correct documentation and evidence to hand and to be able to maintain this documentation from the inception of any claim and throughout its lifetime. Knowledge of the tax system and rules around this specific area is a must in order to ensure that adequate paperwork is retained. It is therefore important to have the support of qualified and expert professionals in all R&D tax claim scenarios.

If you are at all unsure of whether you company is entitled to the tax benefits that R&D tax credits can provide you with, speak to one of the Swanson Reed professionals today and get the advice and guidance that you need.

Manufacturing Business and R&D Eligibility

Research and Development (R&D) Tax Credit, also known as Research and Experimentation Tax Credit, is over 30 years old but is still one of the least understood and most-renewed (it has never been made permanent) parts of the US tax code system. Throughout its many renewals different rules and regulations have been added and taken away, making it difficult to understand for business owners. Companies operating in the manufacturing business working with electronics, improvements in fabrication, developments in software components for industry, and other areas can be eligible for research and development tax credit. Here’s how the system works and how you can find out whether your research and development activity qualifies.

Exclusions to the Credit

Qualified research is applied to certain activities only, and there are many types of research that are not applicable to the tax credit scheme. For example, adapting or duplicating research into an existing business component is not included, and research into a product that takes place after it has gone into commercial production is not valid. Research into the fields of arts or humanities is also excluded, as is research or development activity that is already subject to a grant or funded by a government group. Market research is excluded, as is routine product testing. Software developments for use solely in the claimant’s own company are also excluded.

Tax Credit Eligibility

In order for your manufacturing research and development to be eligible for the tax credits it needs to fulfill broadly four important considerations. The first is the research must be of a technological nature – arts and humanities are out. It must be based in biology, physical science, computer science, or engineering. The purpose of the research should also be to improve or enhance the functionality or the performance of a product or a technique. You should be eliminating uncertainty with your research, and the process should involve a process of experimentation.

Eligible Expenses

You can use the tax credit eligibility to offset the cost of wages for those involved in the qualified research activities. Alongside wages you can also claim the cost of supplies, any research activities that are contracted out to other parties (in California), and payments for basic research.

Professional Advice

There are several ways you can calculate tax credit – some are more complicated than others. If you are using the traditional method, for example, it is best if you have some advice and assistance from a tax professional.

If you are confused about eligibility requirements and what your research needs to encompass in order to be part of the qualifying package, consult a tax professional like Swanson Reed. It can often be difficult to decide if research and development activities are eligible, and businesses are not keen to begin a claim without being 100 percent sure. For this reason, a consultation is helpful and can clear up any questions or concerns.