Technology and media communications – Page 7 – Swanson Reed

Digital Marketing Companies Are Missing Out on R&D Tax Credits

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While research and development activities are generally equated with technical industries, you may be surprised to learn that traditionally non-technical industries may be eligible for R&D tax credits. Digital marketing and media agencies, advertisers and publishers must invest in research and development to survive in a dynamic and ever-increasing competitive environment.

Software development has become the norm for these industries, who have seen a shift from traditional to digital media. While Google and Facebook are the largest players in programmatic marketing technology, companies of all sizes are investing in marketing R&D and hiring teams of technical staff like software developers, data engineers and marketing statisticians. Furthermore, user experience design and strong search engine optimization are now critical to gaining an edge over the competition.

Today, firms are focusing on marketing that relies on numbers and science, rather than vague estimates. Clients continually want better metrics and performance, creating a need for programs that gather and analyse data. Companies making innovative technical improvements to web technology, software development or data analysis may be eligible for R&D tax credits. As well as the front end development required for firms providing business statistics to their clients, APIs often need to be developed in order to provide real-time data metrics. Other qualifying activities include developing algorithms for advertising campaigns, developing or integrating CRM software and coding new features to tackle difficult business challenges.

Keep in mind that work in the arts, humanities and social sciences is not eligible as research and development. Research must be technical or scientific in nature. For instance, graphic design and copywriting are not eligible.

R&D tax credits generally equal 15 percent or more of eligible expenditure. Qualified activities must meeting four criteria.

Activities must:

Be intended to improve or develop the performance, functionality or quality of a product, technology or service.
Involve experimentation.
Be technological or scientific in nature.
Attempt to eliminate an uncertainty.

See whether you could be eligible for the R&D Tax Credit by taking our online eligibility test. If you have any questions, please don’t hesitate to contact our office.

R&D Tax Credit Boosts Growing Material Handling Industry

The demand for material handling and logistics industry has had a continued upward trend in today’s global world. The need for global supply chains and distribution of goods through advanced technology has employed over 700,000 in the material handling market, according to recent figures, and consumption greater than $156 billion in the U.S. In 2013, business logistics accounted for 8% of the U.S.’s GDP. This growth could accelerate with the Research and Development (R&D) Tax Credit. With recent legislative changes, the credit can now be claimed by more businesses and includes more eligible supply costs; a change that may increase a business’ claim by up to ten times.

What qualifies as “research and development” for credit eligibility? There are a number of qualifying activities, including developing material handling systems, designing robotic systems, manufacturing motor systems, or developing overhead material handling solutions, to name a few. The R&D Tax Credit is permanent and many states also have a similar credit which can be added to the federal claim.

Previously, small and medium businesses were often ineligible to claim the R&D tax credit due to the alternative minimum tax (AMT). At the start of the 2016 tax year, the AMT barrier was removed allowing all businesses to benefit from the incentive. Other regulatory and legislative changes have expanded the credit further, allowing companies to be rewarded for innovative solutions such as solving a technical problem on a factory floor or improving a distribution process.

Design improvements through automated systems and innovative technologies can pay off for companies who take advantage of the R&D tax credit. A material handling company which improved designs to an existing industrial system received $596,000 through federal and state R&D credits. These incentives help encourage companies to invest in automated solutions and advance the material handling industry.

If you think your company’s innovative solutions or designs could qualify for the R&D Tax Credit, contact a Swanson Reed Tax Advisor for a free assessment.

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Increased 3D Printing in STEM Initiatives Assisted by R&D Tax Credit

Science, technology, engineering, and mathematics (STEM) initiatives have recently turned to 3D printing to build tools and equipment in response to the increasing demand for laboratory equipment. Tools are built faster and more cost-effective when created using 3D printers. The Research and Development (R&D) Tax Credit aids in this type of work by encouraging innovation.

The R&D Tax Credit, introduced in 1981, allows up to 13% credit for eligible spending on project and product innovations. Research qualifies by meeting the Four-Part-Test:

New or improved products, processes, or software
Technological in nature
Elimination of uncertainty
Process of experimentation

The R&D Tax Credit was made permanent by President Obama on December 18, 2015. Costs such as labor, supplies, testing, research expenses, and developing a patent are all eligible under the R&D Tax Credit. Startup businesses have an allowance of $250,000 per pay year in payroll taxes that they can use the credit against.

The vast array of products created through 3D printing have a direct benefit to STEM initiatives. These benefits range from materials including plastics, steel, copper, and ceramics, to equipment such as beakers, test tubes, pulleys, microscopes, and custom add-on components for equipment and instruments. As well developing an extensive range of products, there are also cost-saving benefits to 3D Printing. A recent study by the Public Library of Science found over 97% cost reductions using 3D printed optics equipment.

Scientists and engineers are also turning to open source models in which designs are shared for 3D printed lab equipment. The model originates from computer science where programmers made source code publicly available for use or modification from the original design. In 3D printing, exact replicas or modified designs are being created using this open source concept which promotes evolution and improvements along the way.

Scientists and engineers using 3D printing in innovation may be eligible for R&D Tax Credits. To find out if your project qualifies or to learn more about the program, contact a Swanson Reed Tax Advisor.

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R&D Tax Credit for Software Companies

Research and development (R&D) tax credits can make a significant difference to a company’s tax return, with the US government providing billions of dollars worth of credits annually. Despite the financial benefits, many software companies are not taking advantage of the credit, as they believe that their work does not qualify.

While this may have been the case in the past, changes to the PATH Act of 2015 expanded eligibility to include small and medium sized businesses who may not have previously qualified, allowing them to offset their regular and alternative minimum tax liabilities and use the credit against payroll taxes. Prior to these changes, many tech start-ups could not claim the credit as they were not yet profitable. The Startup Provision amendment acknowledged the fact that start-ups are some of the country’s most innovative companies. Further changes to the PATH Act also made the credit permanent, so that innovative companies could continue to invest in R&D with confidence.

Another incorrect assumption is that the software needs to be developed for commercial use. The R&D tax credit can be applicable to the development of improved internal business systems. Any applied science and technology that is used to solve a practical business problem can be considered qualified R&D. This means that the software should be new to the business, but does not need to be groundbreaking. Improvements to a program, new iterations, coding solutions and developing algorithms can be considered eligible activities. The work does however need to differ from existing software and there needs to be substantial financial risk if the project proves to be unsuccessful.

Finally, it is also possible to claim for paid work. For government contracts, eligibility will depend on the terms of the contract. For instance, the contract must state that the work will only be paid for if successful, otherwise there is no financial risk to the company for the research.

It is a good idea to consult a tax advisor to determine your eligibility. Contacting Swanson Reed R&D Tax Advisors for a free assessment is a fantastic first step. They will guide you through the process, taking away any uncertainty or stress in claiming the R&D tax credit.

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Texas Leads in Tech Employment

The Texas economy — long a standout and a major source of Lone Star bragging rights — has gained national attention as the “Texas Miracle.” Over the past eight years alone, Texas’ annual job growth has exceeded the nation’s growth by a factor of four, with Texas adding jobs at a robust 2 percent, even in the face of a severe recession. Furthermore, despite the downturn of Texas’s key oil and gas industry, other sectors are continuing to boom. In particular, the technology sector in the state is experiencing persistent growth.

In fact, Texas ranks only second to California in number of technology jobs in America. Aside from popular firms like Google, Apple, Dropbox and Oracle — which all recently constructed or extended major campuses in Austin — nearly two dozen California tech companies also repositioned to Texas or opened outposts there since 2014.

Notably, Texas is home to more than 585,000 technology workers across 34,100 businesses. The state’s tech community continues to enjoy rapid growth, adding 13,800 IT positions within the last year. In addition, tech employers in Texas spend more than $58 billion on payroll annually, with IT employees earning nearly double the state’s average earnings at $99,700 annually. Likewise, Texas leads the country with respect to employment in a variety of sectors within the technology sector, including telecommunications, computer and software wholesaling and electronic repair.

Furthermore, due to the nature of the work involved in the IT sector, companies engaged in any type of technology innovation may qualify for significant federal and state research and development (R&D) tax credits. The Research and Development (R&D) tax credit provides an estimated $10 billion in annual tax savings for U.S. companies; however the credit remains under-claimed by the majority of qualifying businesses. In fact, the Wall Street Journal estimates that a mere 5 percent of qualifying companies claim the credit. 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 in the IT sector.

It is important to note that the eligibility for the credit is much vaster than assumed and the credit’s definition of “R&D” is more expansive than just white coat research taking place in a lab. In effect, if you are making a product or process faster, cheaper, greener or more efficient — counting nearly all software and technology development done in the U.S. — then you may qualify.

Contact Swanson Reed today if you would like to know more about how the R&D Tax Credit works and if you’re eligible.

Capitalizing on ‘IoT’ in Manufacturing: How Important is Documentation?

Undeniably, majority of us are already familiar with a number of smart devices. Powerful, sensor-equipped smart phones, for instance, have brought an unprecedented level of connectivity to our daily lives. Likewise, the Internet of Things (IoT) promises to extend sensor technology to all sorts of objects, even those that are not usually associated with the term “smart”. From a pacemaker to a coffee machine, everything will be linked together through the Internet.

Thus, the burgeoning of this fully connected world represents a unique opportunity for innovation. Throughout the nation, businesses of all types and sizes are engaged in making the IoT a reality. In effect, according to IDC, the worldwide IoT market will grow from $655.8 billion in 2014 to $1.7 trillion in 2020. Furthermore, insights from the MPI Group‘s Internet of Things Study, reveal that 76% of manufacturers will increase their use of smart devices or embedded intelligence in manufacturing processes in the next two years.

However, are companies capitalizing on all the opportunities that IoT represents? Irrefutably, the very nature of IoT is intrinsically linked to innovation. On the one hand, new products, novel business models, improved processes, and innovative interactions are bound to emerge. On the other hand, ground-breaking technological advances will be necessary before the IoT begins to realize its full potential. Either way, companies engaged in any type of IoT-related innovation may qualify for significant federal research and development (R&D) tax credits.

Nonetheless, despite approximately two-thirds of manufacturers believing that the IoT will increase their profitability, majority are actually lagging in maximising their IoT opportunities. Specifically, MPI Group’s insights highlight that manufacturing companies are overlooking substantial R&D tax credit savings. In fact, the study reveals only 17 percent of manufacturers said they were planning to claim tax credits and incentives for their IoT investments, meaning most manufacturers (83 percent) are missing a critical opportunity. For those manufacturers not planning to claim credits and incentives for IoT investments, concern about the associated costs is identified by only 11 percent of respondents. Whereas nearly half (45 percent) of manufacturers say the reason for not claiming the credits is based on a lack of documentation.

Ultimately, manufacturers can address the cost and risk of research and development by leveraging the aforementioned federal, state and local tax incentives. Indeed, planning ahead by creating an infrastructure that identifies qualifying research activities and collects contemporaneous documentation is ideal in reducing future tax liabilities and synthesizing an R&D tax credit that will be sustainable on audit examination. However, although documentation is useful to support these credits, courts have ruled previously that oral testimony can be used to support them as well. For taxpayers without detailed records, reasonable estimates based on the longstanding rule in “Cohan rule” may be allowed. Though, it is still preferential to always keep contemporaneous documentation in support of research activities.

In conclusion, the R&D tax credit is available to businesses that uncover new, improved or technologically advanced products, processes, principles, methodologies or materials. As noted above, the nature of IoT is inherently interrelated to innovation and many companies engaged in any type of IoT-based innovation may qualify for significant tax savings. While claiming the credit requires time, resources and expertise, it can also provide significant monetary and operational benefits to businesses. Nonetheless, the credit continues to be underused by qualified companies primarily because of a misunderstanding of qualification and documentation requirements for federal and state credits. Therefore, in this instance, it is best to contact that help of specialist R&D Tax Advisor to assist with your claim.

Swanson Reed’s R&D tax professionals are available to discuss the R&D tax credit – contact us today if you would like to know if your company now qualifies.

The Digitalization of the Workplace: Is Internal-Use Software Eligible for the R&D Tax Credit?

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In the era of the digital age, there are few areas of our lives which are not impacted by the use of technology. The business world, in particular, is moving faster and becoming more global, more mobile, and more digitized. Ultimately, as technology advances, the digitalisation of the corporate workplace is inevitable.

As a result of this digitalization, many companies have internal-use software (IUS) systems in place. To clarify, IUS includes software that has been acquired, internally developed, or modified exclusively to meet the entity’s internal need. Nonetheless the question remains, can companies capitalize on the costs incurred in developing this type of internal software?

Traditionally, it was a grey area for companies seeking to qualify for the Research and Development (R&D) tax credit on the grounds of IUS. The hurdle to qualify was harder, with companies needing to pass the high threshold of the innovation test – a three-prong test where the taxpayer must prove that the software is innovative, the software development involves significant economic risk, and the software is not commercially available. Moreover, IUS had conventionally been sketchily defined by the IRS as anything that is not a third-party-facing or a commercially available product.

However, the recent change in regulations from the Department of Treasury clarifies and relaxes the IRS’ position over IUS – which is now defined as software that is developed by the taxpayer for use in general and administrative functions that facilitate or support the conduct of the taxpayer’s trade or business.

Moreover, the Treasury and the IRS have clarified that any software designed to interact with third-party customers may now forego the high threshold of innovation test, even if that software was not designed with the goal of selling, leasing, licensing or otherwise marketing it to unrelated third parties.

For years, taxpayers shied away from claiming a research tax credit for internal use software due to definitional uncertainty and the expense of defending software claims in an IRS examination. Overall, the new regulations provide favorable guidance with a broader and more realistic definition of software eligible for the credit. Through enhanced clarity, companies can now have greater confidence when investing in software innovation.

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.

Texas, The New Tech Hub

Texas has the potential of giving Silicon Valley a run for its money. Texas employs more workers that provide Internet services (ISP) than any other state and ranks second in the nation for the Computer Systems Design sector of the IT industry. Texas is home to 13,991 technology firms employing over 156,500 workers with an average salary of nearly $70,000. Here is what the tech industry workforce in Texas looks like:

Industry	Firms	Employment	Average Annual Wage
Computers and Peripheral Equipment	115	16,110	134,351
Computer Systems Design and Related Services	14,825	122,403	93,311
Software Publishers	778	17,464	118,116
Data Processing and Related Services	956	28,947	89,401
Internet Publishing, Broadcast and Web Portals	530	3,763	75,053
Specialized Telecommunications and ISP’s	94	1,680	80,097

Discovering New Technology is Required to Remain Competitive

Without investment in research and development there is no way technology firms will be able to stay competitive and survive as a business. R&D is the lifeblood of technological advancement and is one of the reasons why the R&D tax credit was created — as an incentive for companies to develop new technologies here at home instead of overseas.

If you’re looking to benefit from the credit it is important to look at the guidelines behind eligibility and what is necessary throughout the R&D process. If you’re unsure about your eligibility we are here to help you. Familiarize yourself with the IRS’ 4-part qualifying test and take our eligibility test to find out if your business qualifies.

Reduce Your Tax Liabilities and Invest in Innovation

The R&D tax credit is an excellent way of reducing tax liabilities and enables the chance to invest in research and development for all tax-paying firms, even the youngest and smallest of start-ups. If you’re working on ways to improve products or processes there is a good chance you are eligible for the credit. The R&D activities you undertake need to be of a technological nature. If so there are many business expenses within the R&D processes that you can use in your claim. These include the costs relating to prototypes, inventions and creating pilot products. In 2012, the info tech industry received $1.8 billion in R&D credits from the government, while the professional and tech services industry received $1.1 billion. Find out how you can get a portion of that number.

Swanson Reed regularly hosts free webinars and provides free IRS CE and CPE credits for CPAs. For more information please visit us at www.swansonreed.com/webinars or contact your usual Swanson Reed representative. Click here for more information about our technical expertise.

Source: texaswideopenforbusiness.com