Stacey Roberts, director of state and local tax, got an opportunity to ask Jamie Overberg some questions about the criteria for claiming research and development (R&D) credits. As a partner in TaxOps Minimization, Jamie Overberg focuses on research tax credits, primarily, and to a lesser degree, issues related to §382 and §263A. She completed research and development (R&D) credit studies for well over a decade at EY but made the move to TaxOps to be able to work hand-in-hand with businesses. Jamie shares some surprising considerations and questions to ask in determining whether a company is eligible. Read the summary or watch the interview.
There are several considerations and questions to ask in determining whether to pursue R&D credits. First, consider how many engineers and software developers the business has on its R&D team. In general, it takes a minimum of six engineers or software developers at a company to generate sufficient expenses – wages, salaries, outside contract and leased computer costs associated with R&D to generate a sufficient ROI on R&D credits.
Next, consider whether the R&D is improving a product or process. This is a necessary criteria for eligibility. And finally, consider whether your team could benefit from the cash flow and investment proceeds of federal and state R&D credits. Billions of dollars are distributed to both small and large companies, so filing a claim is worth a try.
What’s the payoff
There are several ways to increase and improve your chances of getting a favorable decision on credit claims. First, keep design documents that demonstrate your product’s research. Second, be prepared to prove nexus between each associate development activities and the project.
A $1 million spend on research could gain a business a federal credit of $100,000. States, however, present a challenge. There are roughly 38 states that currently offer a credit but all with slightly different criteria and requirements. Capitalizing on state credits may require nuanced differences in each research filing by state.
Federally, a business is permitted to change computation methods. States, however, do not always offer all federal methods . TaxOps Minimization’s R&D team completes the credit under methods available to select which can offer the most credit.
Many businesses mistakenly think only larger corporations benefit from R&D credits. This is incorrect. Although large companies may receive a larger credit, small companies are eligible and can benefit more with federal and state credits combined.
In 2018, the IRS received $23 billion dollars of R&D credit claims. It’s a large amount provided only to companies that apply. So, reach out to Jamie Overberg at firstname.lastname@example.org for a quick cost/benefit analysis of R&D credits for your business or to SALTovation’s Stacey Roberts at email@example.com to join the conversation.
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