The Research and Development Tax Credit – Are You Taking Advantage of this most Powerful Business Incentive?

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The Research and Development Tax Credit
Are You Taking Advantage of this most Powerful Business Incentive?

When I speak to business owners, the one question I ask is “What is keeping you up at Night”?  The answers are quite varied, but the one main theme that makes it way to the top is keeping what you have earned in the business.

There are several avenues available to increase the bottom line, and one of the most powerful is the Research and Development Tax Credit.  Not every business will qualify for the credit, but if your business does qualify, are you benefiting from the R&D tax credit?

When a business owner is asked why they are not taking advantage of the R&D tax credit, one the main reasons is that if they could benefit from the credit, their CPA would surely be claiming it for the business.  Of course, your CPA is your trusted advisor, and chances are they know more about your business than any other service provider.  However, it would be impossible for every CPA to know about every activity of every business of every one of their clients.

The knowledge of an outside R&D specialist can be invaluable to the bottom line of your business.  Think of your CPA as the General Doctor, and the R&D specialist as the Heart Surgeon.  The General Doctor may know if your heart has a problem, but in order to properly take care of you, they will send you to a specialist.

Most businesses with an end product, that is ultimately sold to a consumer, can qualify for the R&D tax credit.  This can be any product from an apple, to a widget, to architectural design, to software development.  It is the path of getting to the first unit of production, of ultimate sale to the end user, that will qualify for the credit.

The R&D specialist will analyze the qualifying activities, and at the end of the day, translate this into dollars.  The R&D tax credit is so powerful because it is a tax credit, a dollar for dollar savings against taxes owed.  With the tax changes in the CARES Act, a business can now carry back losses, and if you claim the credit, and are able to carry back the loss, you can now benefit from a refund.

Of course, before exploring the R&D tax credit, it is your CPA that can work with the R&D specialist to properly determine utilization of the credit, and whether or not you should explore claiming the R&D tax credit.

In circling back to the question of “What is Keeping You up at Night?”, now may be the most important time ever claim the R&D tax credit.  This powerful tax credit can put cash back into your business, and in today’s economic environment, we can all use a little bit more cash.

Jill Mazur, CPA

Director

Engineered Tax Services

949-350-6369 / [email protected]