Helping Your Business Recover from a Pandemic with the R&D Tax Credit
Guest Author: Jon Kaplan, Intrepid Advisors
The global pandemic resulting from the spread of the novel corona virus Covid-19 has taken a devastating toll on businesses around the world. In the United States, there has been an unprecedented disruption to normal business activities along with unemployment rates not seen in a century. As businesses try to navigate through these unpredictable times, they may find an unlikely ally in the US Internal Revenue Service.
Tax incentives created decades ago to promote job creation and technological innovation are becoming the latest weapon used to recapture some ground recently lost to this pandemic.
The Research and a Development Tax Credit was first introduced in 1981 and became a permanent part of the US tax code in 2015. Designed to provide financial incentives to businesses that innovate, the term “R&D” was intentionally defined to include a wide array of qualifying activities. Generally speaking, qualifying research activities include developing a new or improved product, fabrication process, or software program. With a recession looming and many businesses still adjusting to this new “normal,” now is the right time to take advantage of this tax credit.
- The R&D tax credit is a credit against taxes owed. If you are facing a tax liability for tax year 2019, there is still time to claim this credit. Whether you are filing on time this summer or on extension in September, this credit may be claimed with your original tax return. In fact, you may also amend returns up to three years from the original filing deadline to claim credits from prior years.
- Has your business developed a new product in response to Covid-19? Have you modified your fabrication process or invested in automation systems? Perhaps you’ve developed an e-commerce website to reduce personal interaction and support social distancing regulations. The R&D tax credit is designed to return a portion of these types of investments back into your business and can amount to 14% of qualified expenses.
- Does your business have net operating losses? You may still claim the R&D tax credit and simply carry the credit forward, up to 20 years. Many younger businesses can even use the credits to offset the FICA portion of payroll taxes, up to $250,000 per year. In addition to the federal tax credit, many states have a similar program designed to further incentivize innovation, including all New England states.
If you haven’t heard of the R&D tax credit before now, you’re not alone. Recent data suggests that over 90% of eligible small businesses neglect to take this credit. Whether your business is temporarily shuttered or you are ramping production to keep up with demand, R&D tax credits could play a meaningful role in reinvesting in our future. To learn more, contact DVIRC and our strategic partners, Intrepid Advisors, who specialize in the R&D tax credit.
About Intrepid Advisors:
Intrepid Advisors is a specialized business advisory firm offering expertise and consulting services relating to the federal and state research and development tax credits. Our firm is comprised of technologist, engineers, and accounting professionals who specialize in assisting manufacturers, engineering firms, and other technology companies benefit from the federal and state research and development incentive programs. Over more than 30 years of continuous operation, Intrepid Advisors has recovered over $450,000,000 for our clients and have never had a credit disallowed by the IRS.