Understanding R&D tax credits

Is your company’s 2023 Federal Income Tax Return on extension? Did you develop any new or improved products or software in 2023?

If you answered yes to both questions, your company may qualify for the R&D Tax Credit. This credit can help you recoup some of the costs associated with innovation.

Benefits of R&D Tax Credits

• Reduces Tax Liability: If your company was profitable in 2023, the R&D credit can directly reduce your federal income tax by providing a dollar-for-dollar credit.
• Carries Forward for Future Use: If your company experienced losses in 2023, you can carry these credits forward for up to 20 years to offset future income tax liabilities.
• Offsets Payroll Taxes for Startups: For qualifying startups (less than 5 years of gross receipts with under $5 million in revenue in 2023), the R&D credit can be used to offset employer FICA taxes (Social Security and Medicare).

Qualifying Costs for R&D Tax Credits

Here’s a list of expenses that may qualify for the R&D tax credit:

• Salaries/wages paid to employees directly involved in R&D activities.
• Costs of supplies used in R&D experiments and prototyping.
• Consulting/Contractor fees for qualified R&D services.
• Cloud hosting costs are directly used for qualified research and development activities.

Industries that Could Qualify

While many industries can potentially benefit from R&D Tax Credits, here’s a table of sectors that frequently qualify:

Claiming the R&D Tax Credit can be a complex process, but Finvisor can help your company navigate every step of the way. Here’s how:

• Qualification Assistance: Our team of tax professionals can assess your R&D activities and determine if you qualify for the credit.
• Maximizing Your Credit: We’ll help you identify all eligible expenses, ensuring you claim the maximum credit amount possible.
• Streamlined Calculations: We have the expertise to handle the complex calculations involved in R&D tax credit claims.
• Comprehensive Reporting: We’ll generate the forms for filing to provide your tax preparer. Additionally, our team prepares a detailed report that documents your R&D activities and justifies your credit claim.

In conclusion, incorporating R&D Tax Credits can lead to significant savings and enable your business to reinvest in innovation and growth. To ensure you take full advantage of this opportunity, consult with a tax professional like Finvisor, who can help you navigate the complexities of the credit.