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Monday, December 22, 2014

How would a small company claim an R&D tax credit in Texas?

R&D tax credit
R&D work must be qualified to earn a tax incentive
By Brandon Zachary 

Many companies across Texas do not claim the R&D Tax Credit, which they are entitled to. This is due to the fact that they believe they are not entitled to this incentive. Many small businesses believe that in order to receive the R&D Tax Credit, they must be a large corporation with big manufacturers and projects. 

The company must simply provide documentation that shows they are entitled to the Tax Credit. Moreover, companies must ensure that they follow the right steps to claim their R&D Tax Credit. It is especially important for small businesses to keep up-to-date with new and innovative ideas in order to compete with other small businesses.

Ensuring qualification


Companies carrying out research and development are likely to qualify for this tax credit incentive. Businesses must have some form of R&D outlined in the IRS guidelines. Businesses must be designing and developing new products, enduring change to workflow and processes, designing and installing of computer systems and software, development of new products that have not yet gone under production, and improvements to existing products. It is important to look at retainable credits as well as credits that the company can claim.

Preparation is key


The IRS requires particular documentation when claims are made for this tax credit, and it is important that the company has the most efficient strategy and knowledgeable team members to prepare these documents. Utilizing company resources, involving in-house knowledge to process it correctly, or having the expertise of specialist tax advisors at hand can be some ways to achieve this. These specialists can make the tax claims process less time consuming and therefore less costly to the company.

Combine expenses used for R&D


Pool qualifying expenditures and carry over deductions that the business does not currently need. Choose between getting an immediate tax credit or carry over the credit for later years. The small business will be able to better budget its’ funds, lowering overall costs of research and development, thus, lowering the amount of payroll needed to obtain in order to receive investment dollars. Invest in new technology for the business and benefit from being up to date with the latest research technologies.

Problem solving


There is often a lack of understanding within companies aspiring to access these R&D Tax Credits and to keep them. The right support is vital in order to ensure that documentation requirements and processes are in place to avoid mistakes that are costly to the business. Professionals of tax assessment can advise the business on what they require to have in place to ensure that all claims are easily dealt with and that payments can be maintained if the company undergoes a financial examination. Companies have been under serious scrutiny since the IRS made the R&D Tax Credit Tier 1 issue in 2007, as businesses are made to ensure that their tax credits were evidenced correctly and with a high level of documentation required. Many companies do not have the expertise to provide the IRS with what they are looking for and so, small businesses require R&D Tax Credit claiming services.

Receiving your incentive


A company can receive their R&D Tax Credit after completing Research and Development on a regular basis. It is designed to encourage and industry for innovation and development. No limit is put on the type of industry that can be eligible and this is a credit that is applicable to the public sector companies as it is to the private sector companies who currently benefit from it a great deal. In order to ensure a company’s eligibility, they can complete the step-by-step wizard that helps to check eligibility for the R&D Tax Credit.

Claiming R&D tax Credit can not only improve the financial wellbeing of a company but also boost the Texan economy. In fact between 2002 and 2012, Texas manufacturers grew from $97 billion to $211 billion, which accounted for 18.6% of US manufacturing exports. As a result, R&D Tax Credit encourages innovation and manufacturing while improving processes and products within a business. It creates more jobs based in Texas due to the added growth of the population. Businesses will be reimbursed the money that they deserve through hard work and innovation. Provide the business with as much efficiency and financial flexibility as possible.

About the author: This article was written by Brandon Zachary, who is a qualified chartered accountant with experience in claiming R&D tax credit on behalf of clients.

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