The Tax Cuts and Jobs Act that was recently passed by Congress raised a lot of concerns and questions about the future of the R&D tax credit. Fortunately, our lawmakers worked out their differences and the research tax incentive survived to continue as a vital part of the tax code. Hopefully, all the press about the tax law has peaked your curiosity about the research credit, and as a result you may be asking yourself, “How do I choose a qualified R&D tax credit specialist who can assist my business identify activities and expenses that qualify for the credit, and maximize the cash benefit?”
The R&D Tax Credit is a valuable business credit that is intended to promote innovation and jobs. Federal and state R&D tax credits can amount to as much as 20% of the costs incurred in developing and improving new and existing products, processes, and software. Unlike a deduction — the R&D Tax Credit is a dollar-for-dollar credit against taxes owed or already paid.
As with everything ‘government’, the IRS regulations relating to The Credit for Increasing Research Activities” is complicated — that’s why it’s important to choose an R&D tax credit specialist wisely. Here are eight important tips to consider when selecting a practitioner:
1. Ask About the Team
In addition to having knowledgeable accountants, does the firm have accomplished engineers with experience in manufacturing and technology? A firm with engineers will better understand your company’s development efforts and be able to guide you in recognizing and classifying qualifying research activities.
2. Are They Knowledgeable About Federal and State Tax Credits?
Understanding the federal tax code regarding qualifying research activities is key. In addition to the federal credit, many states also offer research tax credits as a means of promoting growth and development, and the tax savings can be significant. For the most part, the definition of qualifying research activities in each state is based on the federal regulations; however, the tax credit computation and other factors vary significantly from state to state. An experienced firm with national presence will be better equipped to maximize your R&D credits, freeing up cash to hire new employees, purchase equipment, and reduce the cost of future development.
3. Years of Experience
Be sure to choose a practitioner with 20 or more years of experience assisting businesses across a wide-range of industries. Identifying legitimate research and development-related activities and expenditures can be challenging, and as such you’ll want an experienced team to guide you.
4. How are Their Fees Structured?
The IRS is very clear about how R&D tax credit practitioners may charge for their services. Fixed-fee rates are preferred as they are based on the resources necessary for each specific R&D tax credit study. Fees contingent on the actualized research credits, in any shape or form, are NOT permitted. Note that IRS examinations can be significantly more challenging when it’s determined the R&D tax credit study was performed under a contingency fee arrangement.
5. Client Retention Rate
When considering an R&D tax credit practitioner, ask about the firm’s client retention rate. Let’s face it, customer loyalty speaks volumes about the credibility and quality of a research tax advisor’s service. Building relationships and trust with clients and their CPA partners, providing a smooth and efficient process that saves the client time and resources, offering pleasant and expeditious attention, and delivering expert guidance on qualifying research activities and expense, all factor into choosing the right qualified practitioner.
6. Guidance with Supporting Documentation
Creating and maintaining substantive technical and financial documentation on an ongoing basis is crucial to substantiating your R&D tax credit in the event of an IRS or state examination. A best-practice R&D tax credit advisor can provide you appropriate guidance on effective ways to identify and actively track qualifying activities and expenses as well as recommend ways to maintain your technical documentation.
7. High Audit Success Rate
If you’ve ever been subjected to an IRS audit, you know just how stressful and time consuming the ordeal can be. If your R&D tax credit is ever examined, you’ll want an experienced firm with a high success rate on your team to assist and represent you. A firm with ample examination experience is better able to discuss your R&D tax credit with the Internal Revenue Service and state tax authorities and resolve any questions quickly without loss of R&D tax credit dollars.
8. The Final Study Report
What do you receive at the end of an R&D tax credit study? An experienced R&D tax credit practitioner, such as Intrepid Advisors, will provide you and your CPA a comprehensive report that contains both financial and technical supporting documentation.
Unlike most R&D tax credit practitioners, Intrepid Advisors is a team of financial specialists and experienced engineers that, for more than 25 years, has been helping companies such as yours identify and document qualifying research activities and expenses, prepare the necessary workpapers concerning the complicated calculations, and seamlessly work with its client’s CPA firms to maximize the tax benefits.
Intrepid Advisors’ mission is to assist our clients receive maximum R&D tax credit benefits while providing critical supporting documentation for a reasonable fixed fee. We provide no-cost assessments to determine whether our client’s research and development efforts meet the qualifying research activities criteria as well as approximate the R&D tax credits available.