Common Challenges When Claiming R&D Tax Credits

Although claiming this credit can offer considerable benefits for companies engaged in Research and Development efforts, the process is not without its challenges. Three Common Challenges You May Face while Claiming R&D Tax Credits:‍

Documentation of Qualified Activities and Expenses

• Insufficient documentation is a common challenge with the R&D tax credit.  Accurately identifying what constitutes a qualifying R&D activity and having the proper support can be challenging for taxpayers.  It is important that the taxpayer implements a system for maintaining records and documentation.  While R&D activities must meet specific criteria related to developing new or improved products, processes, or software, having a robust record keeping process is important
• Companies must keep track of their activities and expenses and make sure they are tied to the qualifying activities while adhering to IRS regulations

Updates to R&D Tax Credit Law

• The R&D Tax Code is complex, and lack of awareness and understanding is a common challenge for the taxpayer.  Staying informed of any updates in tax legislation is crucial. Being up to date ensures an understanding of how changes to the code might affect your company's qualifying R&D activities
• To overcome the challenge of ever-changing tax laws, taxpayers should engage experts who specialize in R&D tax credits

Staying Compliant and Audit Ready

• R&D claims are often scrutinized by the IRS, because of this, thorough and adequate documentation is paramount to support any claims
• It is essential for companies who plan to claim the R&D Tax Credit to be fully prepared to defend their claim in the event of an IRS audit.  Maintaining documentation to support claims is crucial