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Have you taken advantage of the R&D Tax Credit?

Get ready now for tax year 2023




By James Crane, CPA, Charles River CFO Tax Services Practice Leader

 

The R&D tax credit is available to U.S. companies developing new or improved business components, including tangible products, business processes, computer software, chemical formulas, inventions, or techniques, that result in new or enhanced functionality, performance, efficiency, reliability, or quality, or some combination of each of these attributes.


The research credit is generally allowed for expenses paid or incurred for qualified research. This research must be undertaken to discover technological information, and its application must be intended for use in developing a new or improved business component of the taxpayer.


The R&D tax credit is available to either reduce federal income taxes or be used as a refundable credit against payroll taxes. Additionally, over 30 states have enacted legislation to provide businesses with an R&D tax credit to be used to reduce or offset state income taxes.


Determining if and how a potential QRE (Qualified Research Expenditure) fits within a QRA (Qualified Research Activity) is not a simple exercise. Furthermore, the number of QREs can be overwhelming to identify and analyze. Investing now in an ongoing R&D tax credit system for 2023 is advised rather than treating the R&D tax credit like an afterthought during tax season when timelines are tight. Critical considerations for an effective system include the following:


  • An effective and efficient system will typically be unique for each business.

  • Accounting classification treatment decisions directly impact and potentially block the qualification of a QRE.

  • QRA timekeeping for wage QREs is almost always essential to the R&D tax credit system.


Q1 is a busy time for your finance team. Tax work, audits, and ongoing financial reporting are demanding. If we can be of help next quarter to look at the organization's systems for capturing and recording qualified research expenditures, don't hesitate to schedule a call now or after the quarter ends.


At Charles River CFO, we are smart, nimble, and flexible. Have you considered how the R&D tax credit could impact your business? Let us know how to connect with you via email info@crcfo.com or call Jack Sullivan, Vice President, Business Development, at (781) 431-0420 x1.


 


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