Small and mid-size companies should take advantage of the R&D tax credit, as soon as Congress passes the inevitable extension. The Research & Development (R&D) tax credit is a significant domestic tax credit – a substantial tool for maximizing a company’s value.
Hard to believe, but many businesses are not aware of the research tax credit. Smaller, private companies, including those owned by venture capital funds simply leave money on the table. Fortune 500 companies know about the R&D credit and take advantage of it, but smaller companies have not yet realized that the R&D credit is a way to put cash into their business.
The research credit expired on December 31, 2007, but the Senate Finance Committee pushed through proposed legislation in June to extend the tax break for the 13th time since it was enacted in 1981. The credit has been allowed to expire eight other times. In only one year has the R&D credit not been available since 1981 (between 1995 and 1996). The credit has become an important factor in U.S. companies’ research and development investments, despite political uncertainty.
The latest proposal is a substitute amendment to H.R. 6049, the Renewable Energy and Jobs Creation Act of 2008, a piece of legislation that also proposes alternative energy solutions and other tax relief for consumers and businesses. The provision is the government’s way of spurring innovation among U.S. companies, giving tax breaks for increasing investment in R&D.
Some Recent Client Examples:
• A $49 million plastic blow-molder received a $283,000 benefit
• A $42 million metal fabrication company took a $704,000 credit
• A $24 million equipment manufacturer grabbed a $356,000 benefit
Companies of all sizes, in a wide range of industries, have used the research and development tax credit across all 50 states of the U.S. According to a report released in April by the R&D Credit Coalition, an advocacy group:
• 17,700 public and private companies claimed research tax credits for a total of $6.6 billion in tax breaks
• Firms in all major industries claim the R&D credit, with the principal industries claiming the credit including manufacturing, professional, scientific and technical services and information sectors.
• California reported the largest share of industrial R&D activity, followed by Michigan, New Jersey, Texas and Massachusetts.
• States with the most companies reporting R&D activity include California, Texas, Massachusetts, Florida, Pennsylvania, New York and Michigan.
The R&D credit is available for qualified research and development expenditures incurred in the U.S. The primary categories of qualified R&D expenditures are as follows in descending order of magnitude:
1. Wages paid to employees performing qualified research activities
2. Supplies used in the conduct of qualified research.
3. 65% of amounts paid to outside contractors for the performance of qualified research.
Businesses can claim the tax credit for their qualified R&D expenditures performed in the U.S. The R&D tax credit claimed increased by almost 50% from 1997 to 2005 and the number of firms claiming it increased by 6%.
Companies of all sizes and in all industries claim the R&D tax credit. The distribution of firms claiming the credit is the largest among small and medium-sized firms. Major users of the R&D credit are in the manufacturing, professional services and information sectors.
Because the R&D Tax Credit is a resource-intensive and highly specialized process, many firms simply cannot develop and substantiate the necessary R&D documentation. Another challenge is capturing all R&D opportunities that currently exist. One way to help your R&D specialist is to capture the credit as it takes place. With increased audit, many companies are choosing specialized tax service providers to maximize their benefits and limit their exposure.
Why Clients Choose SourceCorp:
• Working collaboratively with the end-client’s CPA, we cater to small and medium-sized companies wanting the R&D tax credit
• Trusted, experienced, reliable, and financially stable – empowering accounting firms for 25-years
• Sarbanes-Oxley compliant
• We build long-term relationships with our clients
• One-source resource for specialized tax services
• We will find the maximum benefit
• Complimentary review so that you see up front what the benefit will be
• Complimentary audit assurance and support
• Fixed fee billing
• Responsive and responsible
• 100% guarantee
SourceCorp has a national Research & Development practice with the required knowledge and expertise to meet IRS requirements for R&D Tax Credit Studies. We have a strong commitment to quality and are proud to lead the field in IRS-accepted studies. SourceCorp understands that any good business decision is based on the cost versus the benefit received. Our client/partners recognize the combination of value and quality they receive, which results in a tremendous amount of repeat business. With completed studies resulting in the permanent difference of more than $50 million in taxes for our clients, SourceCorp has earned an unparalleled reputation as the highest quality provider in the R&D Tax Credit industry.
Celebrating our 25th year in business, SourceCorp specializes in Green Building Tax Deductions, LIFO Accounting, R&D Tax Credit Studies, and Cost Segregation Studies. With a team of nearly 70 professionals and with offices located throughout the country, SourceCorp helps clients realize unparalleled experience, services, and trust. SourceCorp serves many of the nation’s most prominent CPA firms, Associations, and Fortune 1000 companies. For more information, please call 817.732.5494 or visit www.SourceCorpTax.com.