This case study shows the application of key legislative requirements for qualifying R&D activities as they apply to relevant activities in the water treatment industry. 

Business Scenario

Wise Water Corporation specializes in the custom chemical synthesis of a unique range of proprietary, environmentally compatible and non-toxic water treatment products. All formulations are custom manufactured in the United States using locally sourced US raw materials.

In 2012 and onwards, Wise Water began projects with the main objective to engineer and develop reliable products and innovative solutions for water treatment.  Water Wise constantly conducted R&D to create new and improved products to perform to the best of its ability.

In order to qualify for the Research and Development Tax Credit, Wise Water needed to determine the eligibility of its proposed R&D activities. The “qualified research” must meet four main criteria, known and developed by Congress as the Four-Part Test.  Water Wise’s qualified R&D activities included the following.

Wise Water’s Eligible R&D Activities

Background research to evaluate current knowledge gaps and determine feasibility (background research of the development of Water Wise’s products).

Prior to 2012 Water Wise had no experience in high pressure boiler products. Previously, their work had focused on low pressure installations. Water Wise was approached by a research institute to begin a tailored collaboration in 2012 to develop and trial a treatment metal passivation solution for the many problems plaguing the high-pressure thermal power industry.

Besides the lack of comparable solutions available, the outcomes of activities in this research could not have been known or determined in advance due to a number of specific technical challenges. For instance, a stall in development of conventional cycle chemistry, limitations such as inadequate metal protection, chemistry-related utility failures, downtime, forced outages and high-maintenance costs were involved.

Up to that time, there was no known method to measure Anodamine concentration, especially at such extreme conditions as seen in the high-pressure industry.

Design and development of a series of prototypes to achieve the technical objectives (development and testing of the system’s real-time assessment capabilities). 

Water Wise’s hypothesis for the development stage was if the product could be developed to offer metal protection with environmentally-friendly, green technology.

Apart from the multiple analytical methods employed to validate a products performance, methods of directly monitoring and quantifying the residual of the chemical technology remain of paramount importance for acceptance and successful implementation. Thus, Water Wise was required to develop a simple, reliable, reproducible and site functional spectrophotometric method to monitor the concentration of Anodamine HPFG and validate success.

Moreover, Water Wise specializes in utilizing custom manufactured formulations using locally sourced US raw materials. It is almost impossible to find reasonably-priced, US manufactured water treatment options. Water Wise wanted to fill that gap and created several innovative products designed to fill that need.

Trials and analysis of data to achieve results that can be reproduced to a satisfactory standard and to test the hypothesis (development of an additional trial feature). 

Water Wise undertook continuous improvements through research in development in the following areas:

• Improvements to production time and manufacturing efficiency
• Improvements in quality of products
• Increased metal protection
• Improvement in safety
• Reduced environmental impact
• Decrease in labour and production costs
• Production innovation sourced from:
• Internal ideas
• Existing customers who have business needs which require new solutions

Water Wise eliminated uncertainty by:

• Testing across all supported releases to determine reliability and user-friendliness
• Experimentation with possible fixes until an adequate solution was determined

Ongoing analysis of customer or user feedback to improve the prototype design (feedback of Water Wise). 

Feedback of the product developed  was necessary to evaluate the performance capabilities of the new design in the field and improve any flaws in the design.  To ensure plant protection, reliability and availability of the product, Water Wise’s technologies perform frequent site consultancy services ensure program.

Since the initial development of Anodamine HPFG, the product has constantly been refined and improved, due to economic pressure and to meet additional thermal power industry concerns and changes such as increased transient, peaking, and frequent-shutdown schedules. The compliance and regulatory demands and standards of operation in the high-pressure industry are far more stringent than that of the low-pressure industry.

Moreover, Water Wise’s  R&D program involved hours of on-site monitoring program application and performance and developing new strategies and validation tools to verify plant protection.

Commentary

What records and specific documentation did Water Wise keep?

Similar to any tax credit or deduction, Water Wise had to save business records that outlined what it did in its R&D activities, including experimental activities and documents to prove that the work took place in a systematic manner. Water Wise saved the following documentation:

• Project records/ lab notes
• Conceptual sketches
• Design drawings
• Literature review
• Background research
• Design documents for system architecture and source code
• Testing protocols
• Results of records of analysis from testing/trial runs
• Records of resource allocation/usage logs
• Staff time sheets
• Tax invoices
• Patent application number

By having these records on file, Wise Water confirmed that it was “compliance ready” — meaning if it was audited by the IRS, it could present documentation to show the progression of its R&D work, ultimately proving its R&D eligibility.

Swanson Reed has just partnered with AccelerateH20 to boost water technology innovation and fill demands in Texas’ $9-billion water technology market. Contact us today if you’ve been involved with water technology R&D and would like to achieve generous tax benefits. 

Texas, whilst renowned for oil, football and barbecues, actually has a lucrative, untapped water market. To be precise, the State of Texas’ economy has an undiscovered $9 billion water and water technology cluster of jobs, businesses, and assets – and it’s mounting. In fact, Texas observed a 19-percent job increase from 2005 to 2015 in water-related jobs. By 2025, the total amount of forecasted jobs in water-related professions is 1,168,320, which constitutes a 35-percent job availability jump from the years 2015 to 2025.

In light of this, AccelerateH20 is a Texas-based entity created to identify, promote and invest in new and existing technologies with potential to fill demands in Texas’ $9-billion water technology market. The non-for-profit company aims to promote effective future water strategies for the state’s residential, industrial, agricultural and utility end users. Most recently, AccelerateH2O launched  the first of seven  proposed regional innovative demonstration hubs to test, evaluate, and streamline next generation water technologies. Essentially, these demo hubs will host another company on their site to trial new innovative water technologies. Hence, smaller companies or start-ups will have access to professional services to conduct testing and evaluation under health and safety compliances. Moreover, the hubs will allow companies to access large-scale facilities and millions of gallons of water to enhance engineering review.

Ultimately, the demo hubs aim to connect the market to resources, assets and ideas by tackling barriers and limitations to innovating water in Texas. The demo hubs are predicted to act as a showcase for knowledge sharing among end-users, technology firms, academic researchers and the general Texas marketplace.

In order to further boost innovation, Swanson Reed has partnered with AccelerateH20. Swanson Reed is a global R&D (research & development) tax credit consulting firm, who can help you achieve tax benefits for innovative activities. The Federal and Texas State R&D Tax Credit laws apply to businesses in the water industry that are performing eligible R&D activities, including participation in AccelerateH2O organized pilots and demonstration.

Swanson Reed provides AccelerateH2O partners, technology firms, investors and underwriters with;

• No-Cost feasibility assessment to determine the financial benefit of claiming earned tax credits for qualifying research, development and demonstration activities.
• Sourced grants, incentives, and funding opportunities for water technology innovation.
• Calculated R&D tax credits, technical briefs to substantiate claims, and a finalization pack for your tax accountant to file with the IRS tax returns at a discounted Network rate.
• Advice on the structure of projects and programs to achieve maximum benefit of all federal and state tax credits and incentives.

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.

A Research and Development (R&D) credit claim could be your company’s passport to reduced tax liability – and it’s all thanks to one rather underused tax incentive.  In specific, the R&D tax credit. This is one of the most bounteous tax incentives and can assist companies in generating generous tax savings. For example, in 2012 alone the IRS estimates that $10.8 billion in federal tax credits were claimed. Considering that this evaluation does not include credits claimed by S-Corps or LLCs or the amount of R&D credits claimed at the state level, the amount of total R&D credits claimed for 2012 is presumably much higher than reported.

However, R&D tax credits are frequently unheeded by entrepreneurs and small businesses, who presume they must have on-site laboratories or breakthrough ‘white-lab coat’ research to claim the credits. Comparatively, others distress that they will face complex tax calculations or that it will trigger an IRS audit. However, many small businesses can claim the R&D tax credit. Moreover, with the changes to the permanency of the R&D tax credit and the PATH Act, the credit is now more easily available to smaller companies and start-ups.

However, despite the evidence that the R&D tax credit is a valuable incentive, its administration has been complicated by uncertainty from companies in a number of areas. Most notably, confusion usually surrounds what constitutes as qualified research expenses and the required manner of documenting and substantiating those expenses. Since we’ve previously discussed what qualifies as research expenses in our latest video tutorial, we will focus on the documentation generally required.

This is particularly important as many companies either understate and/or under-document their credits, consequently losing some or all of them on examination. Thus, how does a company go about properly documenting its R&D expenses?

To begin with, documentation should be assembled while a firm is undertaking the research, even in cases when there is no formal R&D plan yet. Individuals will want to keep all the diagrams constructed and all the schematics. Moreover, time sheets for anyone doing research should be documented with notes on what they are working on and when. This is particularly vital as firms can apply employee’s’ wages towards the credit claim. However, the company must document that 80 percent of the employee’s activities was qualified research and development.  Therefore, if an employee performs qualified R&D services at least 80 percent of the time, then 100 percent of his Form W-2 wages are eligible for the R&D tax credit.

As the New Year begins, it is the perfect time of year for companies to consider how to progress their companies forward in the future. Undeniably, R&D expedites innovation through developing or creating products, processes and systems. However, as can be seen from above, there can be confusion when making a tax claim based on R&D activities. Hence, how can companies avoid errors when making a claim?

One way of escaping error is by engaging in a reputable R&D Tax Specialist, such as Swanson Reed. Our specialists can identify and readily scope out the correct value of your claim. If you should be claiming, an R&D Tax specialist will help you write the technical justification, advise you on what does and doesn’t qualify, clarify what costs should be included and support any questions you may have. If you would like any more information on the R&D Tax Credit, please contact us today to find out more.

Innovation. The very word exudes optimism. It is a process that combines discovering an opportunity, blueprinting an idea to seize that prospect and executing that idea to achieve results. In light of this, Bloomberg has just released their report ranking the most innovative states in America. The Bloomberg US Innovation Index provides evidence of the link between education, research and innovation.

Regardless of many having mentally crowned California’s Silicon Valley or the bright lights of New York City as king. Out of the fifty states, Massachusetts actually takes the victor’s garland as the top state for innovation in 2015. Notably, Texas ranks in 15th place thereby topping New York, ‘the city who never sleeps’, by two places.  The index scores each state on a 0-100 scale across these six equally weighted metrics: research and development (R&D) intensity; productivity; high-tech density; concentration of science, technology, engineering and mathematics (STEM) employment; science and engineering degree holders; and patent activity.

In reality, the high scoring of Texas is not too surprising given the fact that Small Business Trends ranked Austin as the ‘best city to launch a startup’ in 2015. Historically, Texas has been a business-friendly state with a thriving network. During the 2008 recession, Texas was one of the few states to add jobs. As the country emerged from the recession, the Lone Star State continued to grow. To be specific, there was a 41.4 percent increase in tech-industry employment between 2001 and 2013 and Austin ranked as the top city for technology job creation on a recent Forbes list.

On the whole, the Bloomberg Innovation report highlights the effect innovation can have on the local economy. Innovation within states can create a ‘cluster’ of companies which are attracted to the strong business environment, and in turn, propel the labor market and growth. Previous research reveals that innovation leads to job creation, customarily high-skilled job creation. However, as the labor force grows there are other jobs that come with it to service the increased personnel – for example, they need haircuts, they need landscapers, and so on. Hence, innovation is not only beneficial for high-skilled workers, but the local economy at large.

In order to generate innovation in each state, R&D can substantially help businesses propel advancement in their products, processes or software. Nariman Behravesh, chief economist at IHS Inc. in Lexington, Mass., told Bloomberg that there are some tasks that state governments can do to make their states more attractive to research and development, including R&D tax credits. For instance, Texas offers businesses their own version of the R&D tax credit which helps put cash back into the business. Individuals should take advantage of any R&D tax credits available at the state and federal levels as they can claim the credits concurrently. Contact us today to talk to a specialized R&D Tax professional who will be able to answer any questions you may have.

Traditionally, we’ve been told that spending time in close contact with others means risking catching germs and getting sick. However, new research is promoting the idea that you can spread the New Year cheer, rather than the New Year flu.

Researchers based at The University of Texas at Austin, Duke University, The University of California, Berkeley and other institutions have found that being sociable may help spread “good” microbes. The researchers discovered this by observing the changes in the gut microbes and social behavior of wild chimpanzees over eight years in Gombe National Park, Tanzania. The study, published in the journal Science Advances, found that the number of bacteria species in a chimp’s GI tract increases when the chimps are more affable.

In particular, the study found that during dry season the chimps are often seen alone. However, during the wet season they forage in groups and are much more gregarious. To be specific, the study found that each chimpanzee carried roughly 20 to 25 percent more bacterial species during the abundant and social wet season than during the dry season. Moreover, the researchers identified thousands of species of bacteria thriving in the animals’ guts, many of which are also commonly found in humans, such as Olsenella and Prevotella.

Whilst we’re not suggesting you become George of the Jungle in an effort to increase your gut flora, the research could increase the medical industry’s knowledge on the gut. Nonetheless, further research is needed to see if greater diversity of gut bacteria among the chimps has disease protection abilities. Accordingly, the team aims to study the same relationship in humans. This could be particularly helpful as reduced gut microbial diversity in humans has been linked to obesity, diabetes, Crohn’s and other diseases. Hence, the study could help the scientific community better understand conditions of the bowel or why highly sociable people live longer.

Indeed, the results of research like the above can help scientists better understand the factors involved in maintaining a healthy gut microbiome. This could have a substantial influence on medical products, processes and knowledge. Likewise, research and development (R&D) undertaken by businesses can aid companies in advancing their company by filling knowledge gaps. Consequently, this can result in the creation of new products or innovative solutions to problems. In addition, if you are conducting eligible R&D activities, you may be able to claim generous tax savings back on your investment. Swanson Reed are specialist R&D tax consultants, contact us today if you would like more information on the scheme.

Like a fading dream, our memories are not static entities; over time they shift and migrate between different territories of the brain. Since, as far as I know, Hermione’s Time Turner has not yet become a reality, our past experiences remain just that – recollections. However, have you ever wondered how your brain can play back a full memory, but instead of taking the hours over which the actual experience was subsisted, cover it all in seconds?

If so, researchers from the University of Texas at Austin have discovered the mechanism that may explain this capability and could aid scientist’s better comprehend schizophrenia, Alzheimer’s disease, autism and other disorders that stem from distortions between real and fabricated experiences. This mechanism, which compresses information needed for memory retrieval, encrypts it on a brain wave frequency that’s detached from the one used for recording real-time experiences.

To expand on this, the study found that slow gamma rhythms are used to retrieve past memories, as opposed to the fast gamma rhythms that are used to encode memories about things happening in real-time. The reason stems from the fact that slow gamma rhythms have a higher storage capacity due to their longer wavelengths, which explains the “fast-forward” effect since the brain can process an increased number of data points on each wave. Hence, just like digital compression, when you replay a mental memory, these thoughts will have less of the rich detail found in the source material.

In relation to the study, which appears in the January journal Neuron, the researchers believe this investigation could explain why people with schizophrenia who are experiencing disrupted gamma rhythms have a hard time distinguishing between imagined and real experiences. Primarily, researchers plan to examine animals with neurological disorders similar to autism and Alzheimer’s in order to uncover the role, if any, that this mechanism plays and possible ways to counteract it.

Certainly, research such as the above could have a profound effect on the knowledge and treatment of neurological disorders. In companies, research is the pursuit of new knowledge, discovery, or creative activity in an area with the goal of advancing that area’s frontiers or boundaries. Moreover, in an international economic environment where innovation processes are increasingly open and decentralized, companies’ ability to innovate often depends on acquiring knowledge from research and development (R&D).  If you are conducting eligible R&D activities, you may be able to claim generous tax savings back on your investment. Swanson Reed offers professional proficiency across a range of industries and has supported many clients achieve tax cash savings under the R&D tax credit regime. Contact one of our specialist R&D Tax consultants to find out more about the scheme and if you are eligible.

The “war on coal”, as it is phrased by coal advocates and the coal industry, parallels a somewhat modern day version of Arthur Miller’s The Crucible. The target most fingers are pointing to, whilst not Salem witches in this case, is Obama’s Clean Energy Plan. Nonetheless, if there really is a war on coal, Texas is showing how to conquer it.

Indeed, traditionally coal has been recognized to be one the cheapest sources of energy. However, there is no denying the fact that coal is a non-renewable substance and remains the largest US producer of greenhouse gases. Historically, we’ve been mining the easily accessible deposits for the last 150 years and the biosphere isn’t producing any more on a time scale that is relevant to humans.

In any case, many utilities are already transitioning away from coal on an economic basis. The surge in wind and solar has pushed prices down for those technologies, and the natural gas boom has stimulated transition. In fact, the prices for wind and solar power have dropped enough to contend with fossil fuels. Solar prices, for example, have plunged 80 percent since 2009.

Texas, in particular, is well-positioned to prosper because it has an abundance of natural gas, sunshine and wind — and a competitive electricity market that rewards the most resourceful opportunities. Moreover, due to Texas’ diversified economy, the state is expected to be able to react to lower oil and gas tax revenue without radical changes.

Furthermore, Texas easily leads all states in wind power and wind generation raised 26 percent in 2015 – a notable achievement for a state that also leads the nation in oil and gas production. More wind projects are in the workings, and when the wind dies down, natural gas plants can fire up efficiently. In electricity, cleaner-burning natural gas plants are replacing coal faster than in the rest of the nation. Solar, a relatively small part of the energy portfolio, is projected to grow sixfold this year. By 2030, solar is expected to add more generation than wind and natural gas combined.

In addition, environmental concerns are often top of mind for young people, and the issues are also important to many consumers in Europe, Asia and the U.S. Thus, companies must be responsive, especially those with international operations. In general, market competition, the deregulation of the electricity market, innovation and a heavy dose of government have accelerated the transition to cleaner fuels without slowing the economy.  Thus, if the energy future means more wind, solar and efficiency – no state has more favor.

Consequently, there is no denying that shifts in global developments, such as clean energy, are fuelling innovation across sectors.  As the above reveals, Texas is a unique energy market that has the ability to take great strides in innovation.  If your company is operating in the energy field and you have conducted research and development (R&D) activities to create innovative solutions or incentives, you may be eligible for the government’s R&D Tax Credit scheme. Contact our qualified R&D Tax Specialists today to find out if you are suitable to apply for the tax savings.

Perhaps your ‘Dry January’ disintegrated on day five or your resolve to eat healthy collapsed with a hoovering of the Christmas cheese (so you can finally start eating healthily, of course). Certainly, we have officially started the second full week of the New Year and the promises you made in the last few minutes of the previous year may have started to dwindle. However, when it comes to businesses, the New Year period can serve as the perfect motivator for those looking to expand their business operations. Research and Development (R&D), in particular, can assist firms in cultivating cash flow and innovation by developing or improving products, processes or software.

Most notably, there is one policy that has allowed for the expedition of innovation in the United States, and that is the R&D tax credit. Up until last month, the federal R&D tax credit was always temporary and was retroactively extended year after year. In December 2015, the federal R&D tax credit was made permanent by The Protecting Americans from Tax Hikes Act of 2015 (“PATH” Act).

Apart from instilling confidence in US businesses to invest in R&D, the PATH Act included two new provisions that will make it easier for startups and small and medium-sized businesses to immediately benefit from the R&D tax credit. Starting in 2016, suitable startups with less than $5 million in gross receipts will now be capable of using their R&D tax credit (capped at up to $250,000) to offset payroll taxes, producing instantaneous value.

The second key provision of the PATH Act eradicates one of the major restrictions that had prevented many small and medium-sized businesses from seizing the credit in the past. The PATH Act will now permit eligible businesses with $50 million and less in gross receipts (based on a three-year average) to apply the R&D tax credit against the Alternative Minimum Tax (AMT). This is an enormous update for shareholders of eligible pass-through entities (e.g., S corporations and partnerships) who have an AMT liability.

Undeniably, a common misbelief surrounding the R&D tax credit is that only large corporations qualify and that it’s too complex to apply for. Nonetheless, with the two major barriers discoursed above alleviated or eradicated completely, startups and small and medium-sized companies now have an unparalleled chance to profit from this lucrative credit –although they need to start planning as soon as possible. With the New Year now upon us and given these changes to the credit, now is the time to invest in R&D and reap the benefits of this opportunity this current year.  A tax professional, such as Swanson Reed, with R&D tax credit expertise can assist businesses with qualifying for and claiming the credit. Contact us today to find out if your startup or small and medium-sized company can benefit from the improved permanent R&D tax credit.

Not sure of the benefits of R&D? Check out our previous blogs: How the R&D Tax Credit Permanent Boost the U.S. Gross Domestic Product (GDP), and Don’t Hold Back Your Claim: 7 Common Myths about the R&D Tax Credit.