Research and Development
Tax Credit with Source Advisors

For businesses in multiple industries looking to reduce Federal and State tax liability.

What is the Research and Development Tax Credit?

The Research and Development Tax Credit (R&D) is a tax credit for businesses of all sizes who conduct R&D in the United States. The R&D Tax Credit can be extended to a wide range of business and industries that exceeds far beyond scientists and research labs.

The R&D tax credit was created to incentivize US-based research and development. Each year more and more companies take advantage of the R&D tax credit. Additionally, in 2015, the Protecting Americans from Tax Hikes (PATH) Act, made the R&D Tax Credit permanent, while also extending the benefit to startups.

What are the Potential Benefits of the R&D Tax Credit?

The R&D tax credits claimed by a qualifying company can potentially contribute to significant cost savings. These benefits include:

Increasing Cash Flow
Federal and State Dollar-for-Dollar Income Tax Reduction
Claim Credits for Open Tax Years Going Back 3-4 Years
Reducing Your Tax Rate

Qualifying for the R&D Tax Credit

Companies of all sizes and across many industries meet the federal government’s test for qualified innovation activities and can claim Research and Development (R&D) Tax Credits. However, many companies are not aware they qualify. There are thousands of companies that are leaving money on the table and not taking advantage of significant federal and state R&D tax credits.

Many people used to think R&D tax credits only applied to those that wear lab coats or create new best-in-class products. This is not the case – R&D is much more expansive and far-reaching than most people realize.

In addition, R&D guidelines for software development have relaxed. All of this opens the door for companies that have not taken advantage of or maximized their R&D Tax Credits in the past.

These Research and Development Tax Credit industries now include manufacturing, software, engineering, financial services, and many others.

If you’re improving or enhancing products and processes to remain relevant and profitable, you qualify for R&D Tax Credits.

The activities that qualify for the R&D Tax Credit are the same ones driving growth in your business.

Creating improved products, processes, formulas, software, and techniques
Automating or improving internal manufacturing processes
Designing tools, jigs, fixtures, and molds
Integrating new equipment
Development of data center, big data, and data mining tools
Integration of APIs and other technologies
Development of financial or pricing models
Hiring outside consultants to perform any of the listed activities
Manufacturing new or improved products
Developing prototypes, first articles, models
Evaluation of alternative materials
Development of firmware
Network hardware and software development and optimization
Developing simulators
Development of risk management systems

How Do I Claim the R&D Tax Credit?

Ensuring that you understand the rules for qualification is an essential first step in claiming the R&D tax credit. This is normally done during a feasibility analysis, also referred to as Phase 1. R&D activities are explored and identified at a high level along with related qualified research expenses (QREs). This information is then used to estimate your federal and state R&D tax credits. Education is key and provides the ability to identify qualified activities and QREs so a more accurate benefit estimate can be determined.

The expenses that qualify for research activities within your company typically include employee compensation, materials, and contracted services. Various forms of documentation are sufficient to support your qualified expenses and may include payroll records, financial records showing supply or contract research expenses, and vendor invoices.

On average, companies are typically able to claim 7-10% of their qualified expenses as a federal Research and Development Tax Credit. For example, a single software developer, engineer, or lab technician who receives a W2 of $100,000 a year may generate a tax savings of up to $10,000.

Federal R&D Tax Credit Defined

Staying competitive requires companies to continually develop and improve products, processes, software, or perform other qualifying activities – making research and development the driving force behind the growth of many businesses. The Federal R&D Tax Credit reduces past, current, and future years’ federal tax liabilities and is an actual dollar-for-dollar offset against taxes owed or paid. This creates an immediate source of cash that companies can reinvest into the business. Salaries and wages paid to employees or contractors for qualified activities as well as supplies associated with those activities qualify for R&D Tax Credits.

A company’s overall R&D spend can be significant. Many companies conduct R&D activities as part of their daily operations but might not realize it. They also tend to not realize that both Federal and State R&D Tax Credits are available to help offset the costs associated with research. Research activities are defined by a simple 4-Part Test to identify R&D projects. If you are performing activities that meet the four tests, the costs associated with those activities are what generate the credit. Many companies are often surprised at the broad scope of qualified research activities.

Qualified small businesses (less than 5 years of revenue history and less than $5M in current year revenue) that are not paying income taxes due to losses, can still realize cash savings through a reduction in payroll taxes.

R&D Tax Credit State Benefits Available

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.

SEE IF YOUR STATE OFFERS R&D TAX CREDIT
Click on any state to know more

The Source Advisors Approach to
R&D Tax Credits

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 Credit process. We proudly support a recurring service to more than 92% of our clients.

No Cost Feasibility Analysis

One of our Source Advisors technical directors along with a business development representative will conduct the feasibility analysis to determine the estimated R&D Tax Credit benefits. Our professionals are the most experienced in the team and possess an average of 15+ years of R&D tax credit experience.

Understanding the Usability of the Credit Up-Front

We ensure that our clients and referral partners understand the usability of the credit upfront, eliminating situations where a study is completed and fees assessed but the credit does not result in immediate tax savings for the client.

Fixed Fees Include Audit Support

Our fixed fees are based on the scope of a project versus a percentage of the benefit. The fixed fee also includes audit support through appeals. Our approach to identifying and documenting credits provides a strong defense should the study come under audit, and our successful track record with the IRS gives our clients peace of mind.

Dedicated R&D Team

Our in-house dedicated team of professionals includes project managers, CPAs, attorneys, and other tax professionals, most of who were formerly with the Big 4 and average 8+ years of experience working with the R&D Tax Credit. This enhances both our responsiveness and study completion time. Our project managers remain assigned to clients on a year-over-year basis, which supports project continuity, helps us recognize new initiatives that may lead to more credits, and supports stronger audit defense.

Comprehensive Documentation Support

Our dedicated content compliance professionals have the industry knowledge and insight to identify qualified technologies and activities that support R&D tax claims. Proper documentation is essential to maintaining and protecting the tax credit and our strategy helps substantiate R&D progression, protects company interests, and ensures maximum value.

R&D with Source Advisors

Companies of all sizes and across multiple industries meet the Federal Government’s test for innovation. At Source Advisors, we will help your company identify and document qualifying activities to claim the credits you are due.

Find out if your company qualifies for the R&D Tax Credit.