Industry – Page 77 – Swanson Reed | Specialist R&D Tax Advisors

R&D Tax Credit Vital to U.S. Jobs

Despite how crucial the Research and Development Tax Credit is to the U.S. economy, it has stayed a temporary credit since its creation in 1981.

But after 34 years of an off-and-on relationship, American businesses are ready for Congress to stop playing hard to get and commit to the R&D credit, and who’s to blame them.

The R&D credit not only promotes innovation and R&D within the U.S., but it serves as a jobs credit as well. 70 percent of credit dollars are used to pay the salaries of R&D workers in the U.S.

There are R&D jobs to develop new products and services and there are countless divisions of jobs that work behind closed doors to bring those products and services to the consumers. The cycle continues when researchers create new products and services or invent new ways to enhance the value of the original innovation.

The temporariness of the tax code creates uncertainty for U.S. companies conducting larger R&D projects that will more than likely last longer than a year. If companies are not certain they will receive the credit over the expected life of the R&D project, they are less likely to spend the extra money on the research budget. This uncertainty is repressing R&D within the country by causing companies to spend less money on innovation than they would if the credit were permanent.

A permanent credit would assist in keeping good jobs with substantial pay here in America. There is a large global competition for R&D jobs and investment in research activities, giving companies a variety of choices on where to invest their research money. Other countries are beginning to offer more considerate R&D incentives than the U.S., which is leading American companies to take their research dollars and job opportunities overseas.

In the past year, there has been a lot of push for a permanent, more modernized and simplified credit. America is lagging behind other developing nations, and has reached its tipping point. Many members of Congress have realized this and have sponsored various bills, such as the COMPETE Act and the Domestic Research Enhancement Act of 2015, that will have a positive effect on the R&D tax credit. The need for permanent, pro-innovation policies is now.

R&D Tax Credit : Oil and Gas Industry

Initially, the R&D tax credit was primarily used for technological and biomedical research when it was introduced by congress over thirty years ago. Since its first introduction the tax credit has evolved, now it encompasses multiple industries including the oil and gas industry.

The R&D tax credit can be used to revolutionize the oil and gas industry. Both of these commodities are widely used throughout the world. They are used in our homes, our vehicles and in businesses. In order to continue developing the gas and oil industry innovation is required, which is where the R&D tax is proving to be essential in Texas and the rest of the United States.

Innovation Requires Time, Money and Resources

Further developments in the oil and gas industry are required in order to remain competitive in today’s markets. However, substantial research and development is needed, which can be costly. Thankfully the R&D tax credit is available for eligible companies, offering a lucrative investment that allows for forward thinking and the next steps in innovation within the oil and gas industry.

Technology for the gas and oil industry is one of the most complex, therefore it’s only fitting that the tax credit is now available to ensure the research and development is able to continue to grow. This is an industry that is vital to the American economy as oil and gas are used everyday around the world.

Qualifying for the R&D Tax Credit

There are certain activities that determine whether companies and organizations in this industry are eligible for the credit. Here is a short list to give you an idea of what activities are included:

Offshore structure design
Helidecks
Development and testing in a variety of areas including shutdown services, plug and abandonment solutions and turnaround
Plant design regarding safety, chemicals, pollution control and pressurization
Wastewater solutions
Designing and improving drilling
Combustion testing
Improvements in drilling processes and design
Testing and development including:
- Plug and abandonment solutions
- Shutdown services
- Turnaround

The tax credit is there for you to use, the government wants you to use it so now is the time to take advantage and make it work for your business. Many businesses are missing out on this essential tax credit because they feel they don’t qualify, or that they simply don’t have the time or the resources to handle the application. We’re here to help. We will happily conduct a feasibility study, at no cost, to find out if you could benefit from the credit. Make the most of this opportunity to invest in your research and development and watch your business continue to grow and evolve.

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

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.
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.
If your research activities are done in order to eliminate any technical uncertainties, then this also makes you eligible for R&D tax credit.
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.

Life Sciences and Healthcare

One way Texas is able to foster a competitive advantage and continue to create much needed jobs is by investing in life sciences and healthcare. The impact the biopharmaceutical sector has on the economy is continuing to grow and investment, along with the support of the R&D credit, is essential to support that growth.

Research and development is important for the future of healthcare, but it’s also vital if America wants to remain competitive in this industry. Investing in medical innovation and research offers long term benefits to the people in the US and around the world, and to the success of the American economy. The biopharmaceutical sector is one of the few areas of economic growth, highlighting the need to further invest and innovate. In addition to the research and development investment it’s also important to continue educating the young in math and sciences as this is of paramount importance to future innovations and the economy.

The Government is Behind Research and Development

One of the ways the government works to show their support for R&D in the life sciences and healthcare is through the R&D tax credit. The credit has been made friendlier to this area of research and development, yet many businesses fail to put in their clam for the tax incentive. Worries about the calculations, misunderstandings regarding the qualifying expenses and concerns over investigations from the IRS are holding the sector back. To try and encourage more businesses to take full advantage of this credit the government has tried to make it easier to understand. Business owners and entrepreneurs focusing on developing new research, processes and products will continue to boost the economy and make America competitive globally.

Are You Eligible?

Many firms are failing to recognize the expenses they’re able to offset against the tax credit. As a result there has been a decline in the applications for the tax credit in recent years. Swanson Reed is able to assist you when reviewing your eligibility. Here is a list of some of the initiatives that may be eligible:

Developing the processes for new products such as clinical testing phase of clinical trials, FDA qualifications and validation
Manufacturing process scale up design and developments
Manufacturing experimental qualifications in clinical trials
New production lines and factories used for new technology
Product improvements to improve the shelf life of products, reduce the side effects, the stability of the product and the dosage
Supporting new product developments through biometric analyses

Establishing the costs behind R&D can prove to be difficult, mainly because many companies fail to set up a project accounting system that is able to capture all of the expenses provided by the various personnel that are involved in the R&D process.

We have the professionals available to assist you with your R&D claim. Our accountants and specialist team are able to come into your organization and ensure you have the accounts set up to enable you to make the appropriate claims, ensuring you get back the money you need to continue your own research and development.