In our fast-paced world, the market is continuously changing and improving. The different fields and industries are becoming more and more competitive as a way to stay inside the growing demand. The increasingly competitive market requires competitive companies that are willing to innovate and spark necessary changes to keep moving forward. Companies worldwide and in any industry engage in research, experiments, and trial and error to keep up and improve their offered goods, services, and many more.
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How Can A Company Claim Its R&D Tax Credits?
There may be multiple variables and factors involved in the process of claiming your credit. Some might think of it as a hassle, but the savings gained are all worth it. R&D tax credits can provide your company with an offset income tax that is greatly helpful in lessening the company’s burden when it comes to taxation.
In the process of claiming your organization’s R&D tax credits, you first need to identify and assemble support for the credit you are planning to claim and apply for. It’s best to make sure that you are legally entitled to this credit. The International Revenue Service (IRS) usually requires the submission of documentation to reinforce your R&D tax credit claim. The majority of experts advise for the documentation of any related activities that you plan on claiming. This is to strengthen the claim and to ensure the amount spent during the activities that count as an experiment or any relevant activity the company is doing. It’s recommended to keep records such as the following.
- Payrolls – It’s essential to keep all records of payrolls for the employees that are participating and involved in research and development.
- Expenses, receipts, accounts – These are also important documents. It would be best to keep the records of expenses, receipts, and accounts containing and relevant to the supplies and equipment utilized in the research and development.
- Blueprints, prototypes, patents, designs, drawings – Keep every plan, whether visual, written, digital, or manual. Keep everything relevant that is involved in the research and development.
- Contracts and invoices – In the process, a company might have hired help from an outside party or a third-party partner. It’s essential to keep contracts and invoices made during the process of research and development.
- Project and meeting notes – Whenever a company’s team conducts research and meeting where they share and merge ideas, there is always notes that are sometimes called minutes of the meeting. It’s best to keep these too, as it has been valuable and involved in the research and development process.
Who Does a Company Need to Consult With In Claiming Its R&D Tax Credits?
There is no requirement for the questions of “who” do companies need to go to for advice. However, there are some recommendations. It is recommended that a company pair up or contact its trusted CPA or accountant to guide and help the company make sure they are eligible for the said credit. An expert’s opinion is always welcome and helpful, especially if it’s coming from a trusted source like a company lawyer, accountant, consultant, and many more. On your part, it would be helpful to research on your own, too, as the more minds working together, the better.
When Do Companies Claim Their R&D Tax Credits?
R&D tax credits are claimed in a timely manner for usually a year. The market and the world of businesses continually undergo changes from year to year. The usual claim time limit is two years, starting from the end of your accounting period. If your company is interested, then it’s best to submit an R&D tax credit claim for your company’s recognized qualifying expenditures before this interval terminates.
Why is There a Necessity To Claim The Company’s R&D Tax Credits Every Year?
Claiming the company’s R&D tax credits every year is not a hard prerequisite requirement. However, there are many reasons for your company to do so. It’s beneficial to evaluate the R&D tax credit on an annual basis.
- A company could find qualified and well-grounded expenses that are claimable. Conducting annual and accurate analysis is a lot more easily achievable if done as soon as possible (during or immediately at the end of the work year.) Doing the recording is much easier as the details and essential information can be easily remembered. To make it much more accessible, it’s good to organize and set up a calendar. This way, the company can quickly look back and take note of the company’s highlights during the year.
- The method of calculation used by the company is not to be changed on an amended return. This is why when your company is planning on changing its calculation method, it must be done on the originally filed return.
- Credits that the company failed to utilize can be deducted one year or forward 20 years.
In a general sense, the business world and the processes involved with it change from year to year. So, it is entirely logical for a company to get its R&D tax credits analyzed annually.
Are There Any Risks of Claiming R&D Tax Credits?
Like any other claims, there is a possibility of encountering issues along the journey of claiming R&D tax credits.
- International Revenue Service (IRS) Exam – The IRS can conduct further assessment of an R&D position. If the IRS examines R&D credits, it can either be authorized and permitted or disallowed.
- The probability of having disallowed credits – Once the IRS examines a credit, the possibility of the credit being declined appears. However, if your credits are adequately identified and received an appropriate amount of support, these are generally permitted. Credits that lack proper documents and are usually indefinite are often disallowed.
- International Revenue Service (IRS) Penalty and interest – If the IRS identifies and disallows a credit because the credit is claimed on negative grounds such as negligence and taking no notice of the rules and regulations, penalties are often applied. The fine is commonly 20 percent of the credit that was disallowed.
