Innovation is the lifeblood of any successful business, but with high costs, prolonged development, and uncertain returns on investment, it can be difficult to justify investing in research and development (R&D). That’s where R&D tax credits come into play.

Enacted in 1981, R&D tax credits are a government incentive designed to encourage businesses to invest in research and development efforts in the United States. There are several benefits to claiming these credits, like reducing your taxable income, offsetting your R&D costs, and even freeing up more capital to reinvest into your business.

Haynie & Company is the leading provider of R&D tax credit services in Denver, Colorado. From identifying and documenting eligible expenses to preparing and filing the tax credit claim itself, our comprehensive R&D tax credit services will ensure that you don’t miss out on the opportunity to save money and maximize your tax savings. Contact us today to learn how we can help!

Who Qualifies for R & D Tax Credits?

It’s a common misconception that R&D tax credits are only available to businesses making groundbreaking discoveries. Thanks to the 2015 Protecting Americans from Tax Hikes (PATH) Act, this tax credit has been modified to benefit small businesses from various industry types, giving up-and-coming business owners a chance to reduce their tax liability.

To qualify, a business must be engaged in research activities that are intended to create new or improved products, processes, software, formulas, techniques, or inventions. All activities must meet the criteria of the following four-part test:

1. You have a qualified purpose, i.e., you’re developing something new or improving upon something that already exists.
2. You’re experimenting and evaluating possible alternatives.
3. Activities must rely on the principles of physical or biological science, engineering, or computer science.
4. You aim to eliminate uncertainty during the process.

If a business doesn’t engage in hard science and research but still tries to claim an R&D tax credit, an audit by the IRS may be triggered. Haynie & Company recommends always keeping proper documentation, including tracking details of R&D expenses, payroll information, progress reports, designs, lab results, copies of contracts, invoices paid to outsourced researchers, and any other proof of your R&D process.

Qualified R & D Tax Credit Research Expenses

Now that you know a bit more about the research and development tax credit, you may be wondering what counts as a qualified research expense. The following costs may qualify for an R&D tax credit claim:

• Wages
• Supplies
• Contractors
• Patent costs
• Computer costs and software development

Note: As of 2022, the Tax Cuts and Jobs Act requires businesses to amortize their R&D costs over five years instead of deducting them immediately.

From reducing taxable income to attracting new investors, there are a slew of benefits that come from claiming R&D tax credits. Some advantages include but are not limited to:

• Reduced taxable income: Every dollar you spend on qualified R&D expenses can go towards reducing your business’s taxable income. This can lead to significant tax savings, especially for companies with high R&D costs.

• Increased cash flow: R&D tax credits can improve your company’s cash flow by increasing its tax refund or reducing its tax liability. This can free up more cash for your company to invest in other areas of your business, such as marketing, product development, and hiring additional employees.

• Increased earnings per share (EPS): R&D tax credits increase EPS by reducing your business’s taxable income. EPS is calculated by dividing a company’s net income by its number of outstanding shares. Therefore, by reducing your taxable income, these credits can increase your EPS.

In addition to these direct benefits, R&D tax credits can also indirectly benefit your business. For example, R&D tax credits can help improve a company’s reputation and attract new investors and customers. They can also help boost morale among employees, who may be more motivated to work for a company that is investing in innovation.

Haynie & Company has extensive knowledge and expertise in calculating R&D tax credits for both small and large businesses in Denver, Colorado, leaving no stone unturned in our efforts to save you money. We’ll work with you to calculate this federal tax credit, conducting a thorough analysis of your research expenditures and your organization’s vital documentation so that you can receive the most benefits. To see if your business qualifies, contact us today for tax credit services for R&D. We’re ready to take your business to new heights.