The Joy of Spare Change: How Startups Can Benefit From the Overlooked R&D Tax Credit

piggy-bank-970340_960_720From finding a $20 note in your back pocket to discovering a gold mine of spare change lurking in the cushions of your sofa, undeniably, the act of finding money is exhilarating. Your mind wanders as you begin to envision the endless possibilities available to you and your new found money. However, in the back your mind, a lingering voice pries, “are there other saving opportunities I may be missing out on?’

As a startup you may be disregarding savings much more lucrative than an extra $20 in your bank account.  It goes by the name of the Research and Development (R&D) tax credit and this tax scheme can lead to serious savings on firm’s investments.

Historically, many startup companies and small businesses were unable to benefit from the research credit due to operating losses or alternative minimum tax limitations.  However, in addition to making the research credit permanent, the Protecting Americans from Tax Hikes (PATH) Act added two new provisions that are effective January 1, 2016. These two provisions are designed to increase the number of startups and small to mid-sized businesses that can benefit from the credit. In our last post, we went into details of both of these two modifications to the credit.

Nonetheless, there still remains uncertainty around who actually qualifies for the tax credits. Essentially, if you’re spending money on personnel and outside professionals to research a new product or platform, you’ll likely qualify for the credit.

From our experience as specialist R&D Tax agents, the most difficult aspect for companies is when it comes to accumulating all the research and development costs at the end of the year. Whilst most companies document spending, often companies don’t file costs for particular types of tasks. Thus, when the end of the year arrives, it can be problematic to gather and judge the actual research costs incurred.

As a result, the best action a company can take is ensuring an accounting platform is prepared to capture these costs as they transpire. In addition, in order to maximise the accumulation, a general knowledge of what type of costs are involved when claiming can go a long way. For instance, does an administrative assistant helping a computer programmer compile data qualify? The answer to that and similar questions depends on the business. Ultimately, the uncertainty surrounding the scheme highlights the benefits of talking to a specialist tax advisor. A specialist tax advisor can guarantee that you are taking the proper steps to ensure you don’t leave money on the table.

The only question you should be asking yourself now is, are you ready to discover your company’s hidden savings?

Contact Swanson Reed for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.

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