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R&D TAX CREDITS

Research Credit

Federal and state research credits and deductions were established to encourage businesses to increase investments in developing or improving products and processes in the United States, with the ultimate goal of fostering economic growth and creating more jobs in the U.S.

If your company incurs costs for research and development activities, it may be eligible for the research credit, which is a direct credit against a business’ tax liability and ultimately, results in cash savings.  R&D activities may include creation or improvement of:

  • Products

  • Processes

  • Techniques

  • Formulae

  • Inventions

  • Computer software

Nearly 40 states have also adopted a research credit, with most piggybacking off the federal rules.  Two elective methods are available to calculate the federal credit, which can provide cash savings in excess of 7% of a company’s qualifying R&D credit:

  • The “regular” credit

  • The Alternative Simplified Credit (ASC)

We will help you determine which method is most appropriate for your company’s situation.

The federal credit (and most state credits) may be claimed in all years open under the statute of limitations, so a refund opportunity exists for taxpayers who have not previously claimed the credit.  Any unused credits carry forward under federal and most state laws.  Recent changes in federal law also enable small businesses to offset payroll tax or AMT starting in 2016.

  • Start-up companies – those with current revenues of less than $5 million and no more than 5 years of revenue – may offset the OASDI portion of payroll tax (6.2%) with the research credit.

Small businesses with $50 million or less in revenue may offset AMT with the research credit.  These offsets apply to corporations as well as pass-through entities.

View the list of industries eligible for the research credit to see if your business may qualify.

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Eligible Industries for Research Credit

  • Aerospace & Defense

  • Agriculture

  • Automotive

  • Banking & Insurance

  • Chemicals

  • Computers

  • Consumer Products

  • Energy

  • Engineering

  • Food & Beverage

  • Manufacturers

  • Manufacturing - All Types

  • Medical Device & Technology

  • Oil & Gas

  • Pharmaceuticals / Life Sciences

  • Retail (Developing software)

  • Semiconductors

  • Software

  • Technology

  • Telecommunications

  • Transportation (software)

  • Utilities

  • ... and more!

Methodology

We use a phased approach designed to maximize the credit or deduction while minimizing business disruption.  Our process reflects the best practices gleaned over almost two decades of experience implementing projects and defending the credits upon exam.  We continually update our process to reflect current IRS exam practices, so that we ensure the best results for your company.

Phase I: Complimentary Assessment

Services include:

  • Reviewing publicly available material to understand your business

  • Interviewing key employees to further that understanding

  • Obtaining cost, payroll and tax return information

  • Preparing an initial calculation

Outcome of Phase I:

  • Estimate of the potential benefit available

  • A work plan of steps required to document eligible activities and refine the credit or deduction for tax return filing

  • Estimate of fees for doing moving forward

Phase II: Detailed field work – preparing IRS/state tax authority documentation requirements and refining available company incentives

Services include:

  • Project, activity, and methodology memoranda

  • Time surveys

  • Preparation of supporting engineering and technical documents

  • Detailed expense and credit calculations and pro forma tax return forms

Meet Shawn Marchant, Tax Principal

Shawn Marchant Headshot

Shawn Marchant

Tax Principal

For over 20 years Shawn has been advising clients regarding federal and state tax credits and incentives, primarily in the areas of research credits, domestic production activities deduction, and meals and entertainment expenses. His experience ranges from initial scoping through project implementation and delivery, project management, IRS and state audit support, and evaluation of benefits for financial statement presentation. Shawn spent 16 years in the “Big 4,” most recently with Ernst & Young. Shawn began his career in Deloitte’s National R&D Tax Credit group and spent two years in their Accounting Methods & Periods National Practice Group in Washington, DC. A frequent speaker on these topics, Shawn is an attorney licensed in California. He received a JD from BYU J. Reuben Clark Law School and an LLM in Tax from Georgetown University Law School.

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