Mythbusters : R&D Tax Credit Edition

In Federal

With tax extension filing dates drawing nearer, it’s a good time to take a look at your finances and make sure you are receiving all the credits and benefits available to your business. The R&D tax credit is one of the most underutilized, yet one of the most rewarding incentives available for American companies. This is due to common misconceptions and insufficient knowledge of the credit. It’s time to put these misconceptions to bed.

My company doesn’t qualify for the R&D tax credit

The majority of people think the R&D tax credit is strictly for those super innovative companies that are constantly inventing something and racking up patents. Or This is simply not the case. As long as your activities can satisfy the IRS’ four-part test, you can qualify for the credit.

The IRS’ most recent data proves this theory to be untrue. These are the top industries that claimed the R&D credit in 2012:

  1. Manufacturing — $6.7 billion
  2. Information technology — $1.8 billion
  3. Professional and technical services — $1.1 billion
  4. Retail and wholesalers — $775 million
  5. Finance — $265 million
  6. Mining — $80 million
  7. Utilities — $52 million
  8. Real estate — $ 28 million
  9. Construction — $25 million
  10. Transportation and warehousing — $21 million

Another common misconception that falls under this category is that only large companies with lots of revenue can qualify for the credit.  The credit can apply to all companies, no matter the size. In 2012, more than half of the claims came from companies with less than $10 million revenue.

Calculating the credit is too difficult and not the worth the time

In 2012, the amount of credits granted surpassed $11 billion, with the average claim equaling $694,000. Now tell me that number is not worth your time.

With companies like Swanson Reed, time is not an issue. We will handle every step of the filing process for you and will work directly with your personal tax preparer to get the information we need.  We also offer a system that can substantiate your claim throughout the year with very little work on your part, so you aren’t left under a pile of paperwork when it comes time to file.

A lot of taxpayers feel that claiming the R&D credit will trigger an IRS audit. This is rare, but sometimes can happen when filing an amended return and claiming the credit. Since our system substantiates your claim for you, you should have all the documentation needed to prove your claim to the IRS. Swanson Reed will guide you through the entire audit process. Read our audit checklist. 

I’ve never claimed the credit before, so I can’t start now

Up until recently, taxpayers who didn’t elect the Alternative Simplified R&D Credit  on an original return could only elect the Regular R&D credit on an amended return. The Regular Credit may require documentation from decades back,  which many companies do not have, so understandably, this acted as a deterrent. Now, taxpayers are able to elect the Alternative Simplified Credit on amended returns making the process much simpler and more lucrative for companies.

Contact a Swanson Reed specialist for more information. 

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