Federal and state research and development (R&D) tax credits are some of the least understood tax credits on the books. Most businesses aren’t claiming their full potential – but yours shouldn’t leave this valuable tax credit on the table. 

The Credit for Increasing Research Activities (commonly known as the R&D tax credits) represent a dollar-for-dollar reduction of your tax liability and are superior to a tax deduction. Claiming and filing for the R&D tax credit means your business (or your CPA firm’s client) taps into another source of revenue without being required to complete any extra work beyond the filing process itself. 

So, how does your business (or CPA firm) dig deeper into the research and development tax credit to claim your full potential? Here are two insights to guide your investigation: 

After you’ve identified the basic qualifying activities and expenses for your company’s R&D tax credit, it’s time to dig deeper and pinpoint even more opportunities that count toward your tax credit total. Many companies miss these opportunities because they don’t realize which activities qualify, but eligible activities and qualified research and development costs are broader than most companies realize – and they apply to a wide range of industries. 

In order to detect these “hidden” research and development expenses, your company or client requires the assistance of finely tuned software technology specifically engineered to identify qualifying expenditures. To tap into this sort of powerful software solution, it’s best to partner with R&D tax credit experts who offer free feasibility reviews on the potential size of your tax credit and the likelihood of that credit being sustained under an IRS audit. Without the right software tools, calculating an R&D tax credit feasibility review is time consuming and inaccurate.

Furthermore, R&D tax credits not applied in the current year can be carried forward for up to 20 years. So, if your company doesn’t need the R&D tax credits this year, you’re still always able to use them far into the future. Subsequently, these unused credits can be reported as deferred tax assets on your financial statements. 

If your CPA firm or in-house accountant needs additional training when it comes to R&D tax credits, it’s imperative to partner with a tax credit expert who provides training classes and support to explain the basics of R&D tax credits. Training should include key points for identifying R&D opportunities and a helpful checklist to support this effort. 

Distinguish Between Federal And State Credit Calculations 

Each business has its own set of specific facts and circumstances that determine possible R&D tax credit eligibility, and those specifics are even more important to understand in light of differences between federal and state(s) credit calculation rules. 

Every state (and even some local governments) has different requirements and calculation methods for the R&D tax credit, so it’s critical that you understand the differences to maximize your credit claims – and minimum audit risk. 

When you partner with a firm that specializes in the R&D tax credit calculations, you access the knowledge of highly experienced professionals who work with you (or your clients) to navigate the complexities of R&D tax credit calculation rules at the federal, state and local levels. Without that expertise, you risk misfiling your R&D tax credit claim, which might just leave you at the mercy of an IRS auditor.  

Don’t let your company (or client) pass up the opportunity presented by the R&D tax credit: Use these tips and insights to dig deeper into your credit potential and start decreasing your tax liability today.  

Want more insider guidance on claiming the research and development tax credit for your business? Download your complimentary, educational guide.