The post The Research and Development Tax Credit for the Agriculture and Farming Industry appeared first on Indago, Inc..
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Given the nature of the agricultural and farming industry, businesses have the opportunity to constantly experiment with new products and processes. These opportunities present themselves on a daily basis, such as pest control, product development, cost-efficient harvesting, water-saving techniques, and specialty soil development. Other activities that can also qualify as QRAs are pesticide testing and evaluation, irrigation efficiency, and lighting improvement techniques.
Below you’ll find other farming and agricultural activities that will fulfill the IRS Four-Part Test and qualify for the Research and Development Tax Credit:
Does your company perform any of these activities? Book a free R&D consultation! To learn more about the Research and Development Tax Credit visit the Indago Tax Credits website or email us at ebreitenbucher@indagotax.com
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]]>The post Research and Development Tax Credit Symposium: Research Credit Issues (Part 2) appeared first on Indago, Inc..
]]>Proper Estimating Techniques: In a recent IRS Memo, the Service clarified an estimating issue for a certain taxpayer. While IRS memorandums are not controlling authority, the memos can provide guidance as to how the IRS would view a tax position. This particular claim focused on wages and the proper method to estimate wages. Numerous decisions have held that companies do not need to use detailed time tracking in order to claim the research credit. In this situation, the company used a two-step process to estimate the company’s wage expense for purposes of the research credit. First, the company estimated a percentage of projects that involved employees who conducted qualified research during some part of the project. The percentage did not provide an accurate analysis estimation of the time spent engaged in qualified activities. The estimating process was determined to be in violation of the regulations supporting the research credit. From the IRS perspective, the entire estimation must be defensible when establishing wage expenses. Indago can help you navigate these challenges based on the documentation your business maintains to capture expenses allowed by law.
Acknowledgement of Facts in IRS Audits: The IRS recently issued internal guidance regarding audit policies surrounding the research credit. In particular, the audit process is intended to be open and collaborative and encourages agents to collaborate with issue teams. Generally, these developments are encouraging for companies as it is in your best interest to have experts reviewing your claim. However, the audit process now includes a new document called an “Acknowledgement of Facts.” The IRS issues the Acknowledgement of Facts after collecting data and facts surrounding the claim. The document may contain partial or incomplete information and be slanted towards the IRS’s positions. If issued one of these documents, contact Indago to help you assist in reviewing and responding to the claim.
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]]>Attending the 2017 Research and Development Tax Credit Symposium in Washington D.C. gave some of Indago’s Tax Credit Practitioners the chance to discuss unique issues with other experts in the field. Some of the new or unsettled issues in the field include prototype claims, funded research in vertical industries, proper estimating techniques, and Acknowledgement of Facts in IRS audits. These types of issues can present difficult tax problems for companies, fortunately Indago’s technical staff is here to help you navigate these challenging issues.
Prototype/Pilot Model Claims: Recently, changes to the regulations around the research credit expanded the definition of prototypes and pilot models. Previously, a company could only claim the cost of a single prototype if the company developed the prototype for another company and then sold the equipment to another company or otherwise did not claim the depreciation expense. Now, the cost (labor and supplies) to build a fully functional prototype can qualify as research costs for the company that developed the equipment equipment or prototype. This change further encourages innovation and risk taking on the part of companies on the cutting edge of their field.
Funded Research in Vertical Industries: Many small to medium sized companies enter into contracts with much larger businesses to perform services or to develop custom products or equipment. Oftentimes, larger companies utilize standard form contracts that contain very favorable language for the larger company. This process can have negative effects from a research and development tax credit standpoint because the larger company prevents the smaller company from claiming the expenses related to the project. Indago can help you navigate these tricky contract questions so let us know if your research activities pertain to work done under contract for larger companies.
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]]>The post Research and Development Tax Credit Symposium: Documentation Methodologies appeared first on Indago, Inc..
]]>Documentation challenges are the most controversial area of an audit, however this challenge can be combated by developing a unique plan for each client at the outset. First and foremost, Indago will try to establish a methodology for gathering project documentation in tandem with the development process. A way to go about this would be asking about project documentation early and often, in real time interviews when concepts are initially discussed. When gathering these documents we will establish expectations early and be transparent about the use of them. At Indago, it is important to us that we help develop a project approach that makes the most sense to each client and provides the easiest way to determining your Research and Development Tax Credit.
In some instances, when a complete enumeration of projects would be too burdensome for the taxpayer and the available data is too voluminous, statistical sampling can provide a viable solution. Revenue procedure 2011-42 provides authority that allows for the broad use of statistical sampling to establish federal tax positions. Statistical sampling can be utilized in a variety of ways to substantiate an R&D Tax Credit study. The most common ways to utilize this methodology are to statiscally sample projects or employees. This allows company’s to essentially perform a data dump that can be vetted through as an original population. From here, degreed statisticians will work with your tax professionals to create a smaller, more focused project list that will represent all the qualified activities being undertaken by the company. Statistical sampling is an efficient, cost effective way to assess each client’s qualified activities. In some instances, statistical sampling can provide nexus between employees and projects which creates a more defensible position from an audit perspective. There are several different sampling methodolgies, each of which can be assessed depending on the clients specific situation and record keeping system.
Stay tuned for our next post: “Grappling with the Most Difficult Research and Development Tax Credit Issues“
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]]>The post Research and Development Tax Credit Symposium: Internal Use Software appeared first on Indago, Inc..
]]>Software has posed a problem for Congress and regulators for a long time. The tax code and laws struggle to evolve as rapidly as companies develop new and better types of software. For years, companies faced uncertainty regarding the qualification of internal use software towards the R&D Tax Credit. Now, regulators have given companies much desired certainty regarding the acceptability of internal use software as an eligible claim towards the R&D Tax Credit. Regulators have also provided much needed clarity on what actually constitutes internal use software. Typically, internal use software is software developed by a company for general and administrative purposes or non-computer services. Basically, internal use software is software developed by a company to satisfy some need in their business. To qualify for purposes of the research credit, the activities a company undertakes must satisfy the standard developmental requirements for the credit. In addition, activities related to the development of internal use software must also satisfy a higher threshold of innovation and involve a significant economic risk on the part of the company.
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]]>The post How to Claim the R&D Tax Credit Against Payroll Taxes appeared first on Indago, Inc..
]]>Qualifying small businesses can now use a portion of the R&D tax credits they generate against the 6.2% payroll tax (Employer FICA Social Security portion) imposed on all U.S. businesses wage payments to employees. This is a huge change because before the PATH Act, companies that had not yet generated income could only carry forward their R&D credits and would have to wait until they exhausted any losses and reached enough profitability that would warrant the use of the credits. A qualified small business is defined as a corporation or partnership with:
How can my small business elect the Credit?
Once it has been determined that your business is a qualified small business and generating an R&D credit, the process of claiming the credit is actually straightforward . Here are the forms you will need:
When does my business receive the benefit?
The portion (or all) of the credit that is being used to offset the employer’s portion of taxes is applied to the first calendar quarter after the corporate income tax return containing the payroll election is filed. For example, if your business makes the payroll tax credit election and filed your corporate tax return on March 15th , the credits will be applied on your payroll on your 2017 second quarter payroll tax return (as soon as July 2018).
Are there any limitations?
There is no limit to how a much a business can generate in credits depending on their spend, but there is a limit to the amount of the R&D credit the business can elect to allocate against payroll taxes. The business cannot apply more than their payroll tax liability in a given year or no more than $250,000.
Ultimately, the R&D Tax Credit against Payroll Tax liabilities is an extremely powerful tool for a qualified small business. The result of which is a more immediate cash benefit as your business can see credits utilized sooner than before legislation was enhanced. If you conduct R&D activities and think your business is a qualified small business under the guidelines above, give us a call and we will walk you and your accountant through the process and estimate what your savings will be this year!
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]]>The post Research and Development Tax Credit Symposium: Best Practices appeared first on Indago, Inc..
]]>Now that the Research and Tax Credit is permanent, it is important to ensure that your company is utilizing the R&D Tax Credit to the best of its abilities. A crucial component of this is making sure that your analysis is being handled properly and with the use of best practices.
There are several ways for R&D practitioners to do this:
Indago’s team of CPAs, engineers and strategists are dedicated to ensuring that your companys’ Research and Development Tax Credit is properly maximized and claimed. As a company, Indago consistenly practices the above tactics on a day to day basis.
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]]>The post Research and Development Tax Credit Symposium: Navigating the Changes appeared first on Indago, Inc..
]]>Qualified small businesses are now eligible for payroll offsets regardless of profitability. The payroll offset applies to companies with five years of fewer of gross receipts preceding the claim year. Gross receipts is broadly defined under §448(c)(3), NOT IRC §41(c)(7) and Reg §1.41-3(c). This means that special attention must be paid to anything that may have been reported as income in the businesses history. One other thing that has been a common misconception is that the law states that there must be $5 million in gross receipts in the CLAIM year to qualify for the offset. The benefit is claimed on quarterly payroll returns (Form 941) in the first quarter following filing of the federal income tax return and any unused credits can carry forward to subsequent quarters. The credits application can be manipulted to best suit each company’s facts and circumstances. This means the benefit can be applied against payroll and income tax if the company has a small amount of tax liability as well. IRS Notice 2017-23 clarified that the credit for non-certified PEOs would also remain with the client not the PEO since the client controls the employees undertaking the activity. The deadlines for the payroll offset’s application to FICA liability are slightly different than the typical filing deadlines so its important to assess each client’s unique situation so that they will be able to benefit as soon as possible.
Thanks to these new benefits, the Research and Development Tax Credit can be utilized for small businesses and startups and Indago is here to help you simplify the process.
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]]>Despite the Research and Development Tax Credit being permanent and enjoying bipartisan support, changes will happen to the credit as other parts of the tax code change. Every political administration seeks to accomplish certain policy goals that typically occur through taxes (either cuts or increases) and spending (either cuts or decreases) decisions. As a result, the R&D Tax Credit will likely continue to change based on those larger political and tax policy decisions. Budget, tax, and policy decisions are typically made on a ten-year window with certain assumptions on overall economic growth. Currently, the credit enjoys bi-partison support and will continue to do so. Changes could come in the form of enhancements to the alternative simplified credits. Currently, the alternative simplified credit is a 14% credit compared to a 20% regular credit. The regular credit requires a much futher look-back period into the mid-90s or mid-80s depending on when your company was founded. Documenting the early years of research expenses can be challenging for company and enhancements to the alternative simplified credit would be favorable for most taxpayers. In addition, people on both sides of the political aisle support further enhances to the R&D credit for domestic manufacturing. Finally, we are seeing the initial effects of changes made to the credit for small businesses (AMT turnoff) and startups. Additional changes and enhancements could be implemented to further improve the financial health of small businesses as more and more political leaders realize the importance of small business in relation to the economy as a whole.
Staying up to date on all of these changes can be challenging, fortunately Indago has your back and we will do the heavy lifting for you to make sure your business doesn’t miss key tax savings!
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]]>Companies within the foundry industry aren’t aware that most of their daily activities can be claimed under the Research and Development (R&D) Tax Credit. This strategic financial planning tool will allow foundries to reinvest the credit obtained into new R&D efforts. Any type of investments made in wages, supplies and contract research for “qualified services” purposes can be claimed under this tax incentive.
Additionally, it is important for foundry owners to acknowledge that qualifying research activities (QRAs) can occur in the plant or shop floor area. Companies don’t need a laboratory or specific R&D department to conduct QRAs as defined by the IRS. For an activity to qualify as a QRA, it has to fulfill the “IRS Four-Part Test”. This test has four requisites: new or improved business component, technological in nature, elimination of uncertainty and a process of experimentation.
The following foundry activities are eligible to claim the Research and Development Tax Credit:
On December 18, 2016 the PATH Act became law, making the R&D Tax Credit permanent. This permanency encourages foundries to continue developing processes and delivering safe and innovative products to the public.
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