The Secret To Maximizing Your R&D Tax Credit Potential

Written by Mark Echols. Updated Aug 3, 2017.

calculator-178127_640.jpgFederal 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. So, how does your business (or CPA firm) dig deeper into the R&D tax credit to claim your full potential?

Here are two insights to guide your investigation:

Identify “Hidden” R&D Expenses

First it is important to identify the basic qualifying activities and expenses for your company’s R&D tax credit, then it’s time to dig deeper and pinpoint even more opportunities that count toward your tax savings. In order to detect these “hidden” research and development expenses, your company or client requires the assistance of finely tuned tax software technology specifically engineered to identify qualifying expenditures. To tap into this sort of powerful software solution, it’s best to partner with an outsourced tax consultant who offers 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 tax 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 an outsourced tax consultant 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

Gaining R&D tax credit eligibility is unique to each business, which makes it even more important to understand the 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 an outsourced tax consultant that specializes in 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.

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Topics: R&D Tax Credit

Mark Echols

Written by Mark Echols

Mark leads CTI’s national research and development (R&D) tax credits practice and is involved in all aspects of providing R&D tax credit services to his clients, including: conducting high-level R&D tax credit feasibility analyses, managing complex and comprehensive R&D tax credit studies and defending R&D tax credit claims under IRS and state taxing authority examinations.