Reason Why Companies Think they Don’t Qualify
There is a lot of misinformation about this credit due to all the changes it has gone through over the last several years. The difficulty lies in the inability for companies and their tax advisors to decipher the complex and always changing regulations of IRC Section 41 to the applicability of their business.
Many of our first time clients along with their CPAs originally thought they did not qualify for the R&D tax credit. The primary reason for this confusion is attributed to the public definition of what constitutes R&D. The IRS definition is much different from what the public stereotypically believes R&D to be. The IRS definition is much broader and more liberal in scope.
Pinnacle Provides Specialized R&D Expertise
Our goal is to educate the client and their CPA firm as to what type of activities and costs constitute R&D and what type of documentation is required to support the claim. We will not file a claim if there is no eligible activity or a sizeable net tax benefit to the Client. We will work transparently with your CPA and discuss as a team what the expected real tax credit is and whether the Client should proceed or not.
What is the R&E Tax Credit Program?
- The Research Tax Credit under IRC Section 41 is a 20% non-refundable federal tax credit plus an additional state credit.
- Refunds will be generated after applying these credits against taxes paid.
- This is an incentive program to encourage American businesses of all sizes and in all sectors to conduct research and experimental development (R&E) in the USA.
- This will lead to new, improved, or technologically advanced products and processes, including new jobs. more>
Who Qualifies?
- Generally, an S-Corp, C-Corp, Public, LLC, Partnership, or certain types of ESOP qualifies for this credit.
- The tax credit would generate a cash refund for these companies. Companies that have Net Operating Losses (NOLs) or pay AMT are not ideal candidates.
What kind of projects qualify?
- Experimental development to achieve advancement to create new products, materials, devices, processes, incremental improvements, software, or improve existing ones.
- Work must advance your company’s technology and know how.
- Work should address scientific or technological uncertainty.
- Must demonstrate a systematic investigation or process experimentation to achieve desired results by qualified personnel. more>
What kind of Costs Qualify?
- Direct Wages such as design, lab, and engineering (Form W2)
- Indirect Wages to support activities such as quality assurance, production, supervisors, lead hands, technical sales, data collection, testing, computer programming, and administrative (Form W2)
- Materials used in the activity that were discarded or rendered unusable.
- 65% of Subcontract labor and research.
Important Tax Forms
- Research Tax Credit (Form 6765)
- C Corporations (Form 1120)
- S Corporations (Form 1120 S) – Shareholder Flow Through Entity
- AMT for C Corp – Form 4626 of the 1120
- AMT for S Corp – Form 6251 of the Personal 1040 for each shareholder
- IRS Form 6765
How is the R&E Tax Credit Calculated?
- Regular or Standard Method
- Alternative Simplified Credit (ASC)
- Alternative Incremental Research Credit (AIRC)
- Pinnacle can help you identify and calculate which method is best for your company to ensure the highest net tax benefit.
How Long will it Take to Process the Claim?
- Pinnacle has a proven methodology and process that is quick, systematic, and very effective of maximizing the refund with little business interruption.
- It will take your company generally no longer than 8-15 hours in total.
- Pinnacle spends over 50 hours compiling, preparing, and writing the technical report using Nexus – the only accepted method the IRS accepts now. more >
Why Pinnacle?
- We Specialize in the R&D Tax Credit
- We have a Proven Track Record
- We Take an Engineering Approach
- We have filed over 1000 R&D
- We Prepare the Most Comprehensive Technical Reports
- We use Nexus to ensure your claim is 100% compliant
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