IRS R&D tax credits benefit start-ups
When it comes to building a success start-up founders look to leverage various strategies to increase their bottom-line while maintaining growth and efficiencies. Large-scale businesses utilize tax strategies, and early-stage and small businesses should see this as a viable strategy to come out ahead more easily.
It’s estimated that over 80% of small businesses and start-ups are unaware of or don’t know how to access government-sponsored tax credits that can save companies thousands of dollars annually.
Breakthroughs in companies often come in the form of new product and service offerings. Product development takes significant time adjusting and testing, also known as research and development. The research and development tax credit has been a long-standing program that became permanent as a part of the Protecting Americans Against Tax Hikes (PATH) Act of 2015. Specifically, this change opened up enhanced benefits for start-ups.
A permanent credit means all business can meaningfully plan long-term for tax benefits. For small businesses the research credit helps offset payroll tax liabilities as well. Unknown to most start-ups, they are eligible to receive these credits for their monetary investment in R&D whether the product has been launched in the marketplace yet or is even yielding revenue. Basically, new businesses get tax benefits for investing in innovation.
Even if your business isn’t heavy on research, the program covers a variety of industries. If your company makes something and evolves over time for improvement, then you probably qualify. Some industries include:
SaaS
Artificial Intelligence
Consumer Goods
Agriculture
Manufacturing
Natural Resources
Textiles
Pharmaceuticals
A tax professional should be consulted to make certain the correct documentation is gathered to support claiming R&D credits. Documentation can be things like timesheets, technical documents, product roadmaps, emails, invoices/receipts, contractor agreements, and more. All should show expenses and during the full duration of the time you are claiming the credit. The main four types of expenses to document include:
W-2 wages for employees performing, supervising, or support R&D activities in the US.
Payments is US-based contractors performing technical work.
Prototyping and development supply expenses.
Staging and testing environment expenses that are cloud-based.
While you’re doing the work of building your products and offerings, our team can handle the daily tasks and documentation ensuring maximum tax benefits and risking the risk of an audit through consistent reporting and tax filing. And maybe your tax savings will help fuel the next big project, staff expansion, or just provide a little breathing room to focus on growth.