What are R&D Tax Credits?
The R&D tax credit is a government incentive that was established to encourage research and development activities in the US.
Simply put, it's a dollar-for-dollar reduction on your federal taxes for qualified expenses related to developing new or improved products, processes, or software.
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How Does the R&D Tax Credit Work?
Companies usually claim about 7-10% of their eligible expenses as a federal R&D tax credit. For instance, a software developer, engineer, or lab technician earning a yearly W2 of $100,000 might lead to tax savings of up to $10,000.
Eligible expenses for your company's research activities often cover employee salaries, materials, and outsourced services. To back up these expenses, you can use multiple forms of records, such as payroll details, financial documents showcasing supply or research contract costs, and bills from vendors.
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How Do I Claim The
R&D Tax Credit?
While claiming R&D tax credits demands thorough documentation and adherence to Internal Revenue Code guidelines, the potential financial rewards are well worth it.
While Form 6765, Credit for Increasing Research Activities, serves as the initial filing platform, the crucial step lies in precisely identifying and comprehensively documenting eligible expenses. Financial records, project plans, technical data, and even oral testimonies can strengthen your claim and demonstrate how these costs directly contributed to qualified R&D activities.
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R&D Tax Credits with GOAT.tax
With our consultative approach to the research and development tax credit, we invest time understanding each client’s history, current business direction, and future growth objectives. Each year we re-evaluate a company’s ability to accept the tax credit and provide on-going recommendations to improve the R&D tax credits process.
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Does Your State Offer R&D Tax Credit?
Most states offer R&D credits to offset state tax liabilities. We’ll guide you through variations in State and Federal R&D tax credit rules, evaluating any states in which you qualify for and state-specific filing requirements.
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The tax credit is immediately applied to your tax liability on your corporate tax return. This means that your benefit is calculated into your final tax due. As long as you filed your return timely, you will not have to wait for the IRS to issue a refund. If you did make an amended claim, that claim can take anywhere between six (6) months to nine (9) months to be processed.
CPAs are expected to have a general and broad knowledge of tax. This allows them to tackle the hundreds of possible situations that they deal with on a daily basis for their clients. Because the R&D tax credit, unlike other tax incentives, requires deep experience and interpretation of code sections that are not always clearly defined, it is not uncommon for CPAs to recommend consulting services or calculation platforms like GOAT.tax, to handle the R&D credit while they handle everything else.
Yes, employee salaries are only one (1) of the qualified expenses that generate an R&D tax credit. Other qualified expenses include Supplies and Materials, Outside Contractors, and even Cloud Computing costs! Not having employees does not preclude a company from claiming and utilizing the R&D tax credit.