R&D tax credits are an effective tax solution for businesses seeking to significantly increase savings. Before you begin the credit substantiation process with an outsourced partner, it is critical that you think about what you are looking for in a tax expert who specializes in incentive programs like the R&D tax credit.
As you prepare to capture your R&D tax credits and research consulting partners, ask yourself the following questions to ensure your engagement with your tax consultant yields a positive outcome.
1. How Long Does It Take To Conduct An R&D Tax Credit Study?
Before an R&D Tax Credit Study is performed, the tax consultant should have already performed their due diligence by creating an implementation plan and a specific timeline to accurately and efficiently complete the Study. Uncertainty about the time it takes to complete an R&D credit study is a deterrent for some businesses that should qualify for this tax savings strategy. Many companies do not want to put in the effort to capture R&D credits if a study is going to take six months.
However, your tax expert is available to assist you throughout the credit process, which may be shorter than you believe. With the right consulting partner, an R&D study takes only six to eight weeks. Your tax consultant should also offer a preliminary high-level study to assess your eligibility free of charge, so you are sure the time you put into the credit process pays off.
2. Does Your Consulting Partner Use Proprietary R&D Tax Software?
Cutting-edge technology is an instrumental component of an R&D study. Your consulting partner’s tax software should allow your business the flexibility to outsource as much or as little of the process to secure R&D tax credits as you wish.
With features that ensure documentation, filing positions and institutional knowledge evolve as your needs change, your software tax solution makes the R&D credit process simpler and more efficient and allows taxpayers to have transparency and control of the process
The other benefit of using technology to document your R&D credits is that if and when these credits are examined by the IRS or state taxing authorities, the voluminous supporting R&D documentation for these claimed credits is well-organized in the software’s central repository. Recent IRS audit guidelines and new penalties have accelerated the time for taxpayers to respond to the service’s information requests and having the R&D software at your finger-tips will greatly improve your ability to respond in a timely and well documented fashion.
3. Is Your Tax Consultant Prepared To Secure Savings For All Qualified Expenses?
When your business is working to capture valuable R&D tax credits, it’s important to claim the maximum credit. This means reviewing and analyzing your company’s records to identify supporting documentation that qualifies you to receive tax credit savings on every type of qualified R&D expense.
Expenses that are eligible for R&D tax credits include:
- Wages – You can claim as R&D wages, employees who perform a qualified service, such as conducting research and experimentation activities.
- Supplies – Any tangible property other than land or land improvements that is not depreciable and is used or consumed in research activities may be considered an eligible supply expense.
- Contract Research – Payments to third-party contractors performing qualified research activities are eligible as long as the taxpayer has some rights to the research and take on the risk of the research.
If your outsourced tax expert is not prepared to claim savings for all of your qualified expenses, you are not receiving the most value from your engagement.
Keeping the previous three questions in mind as you consider various tax consultant partners benefits your tax budget in the long term; the right partner is able to help you claim significantly more credits and tax savings than a firm without the proper technology and experience.
If you have questions about claiming R&D credits or whether your business may qualify, a tax expert is the first person you should consult. Tax experts at CTI are available to assist and provide tax guidance.
Ready to learn how to capture R&D credits more effectively? Discover tips from the tax experts on profiting from R&D credits.
