THE APRIL 18TH TAX DEADLINE IS APPROACHING FAST
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By Stephen Yarbrough, Polk Advisors
5 min read
As the legislative session gets later into the year, time is running out for Congress to reverse course on the capitalization of R&D that will go into effect in 2023… and just when you thought you were getting ahead on your tax filings, a piece of new legislation goes and throws a monkey wrench in your process, am I right?
If you haven’t heard, the Tax Cuts and Jobs Act of 2017 included a change to tax deductions that affects R&D expenditures, after December 21, 2021. Prior to this R&D capitalization rule, startups didn’t need to worry about capitalizing R&D expenditures. Rather, this was more of an “add-on” for companies with qualified research and development expenses that claimed the R&D tax credit.
Well, it’s after December 21, 2021 now, so what does this mean for companies?
So it’s more than likely that companies are going to have to analyze their R&D expenditures in order to complete their 2022 tax returns. Well, unless Congress gets it together, but we’re not holding our breath on that..
Now, here’s where it gets even more complicated.
There are different definitions of R&D. For instance, the definition of R&D according to Accounting Standards Codification differs from the definition in Internal Revenue Code 174, Research for Tax deduction/capitalization; which differs from the definition of R&D in IRC 41, Research for Tax Credit. This article from Grant Thornton gives a great summary of these differences among other great information about R&D capitalization.
Another complicating factor: some states follow the same rules as federal tax law to determine income, and other states (such as California) lag federal tax law. This means companies in lagging states will not only have to capitalize and amortize R&D for the federal return, but they also need to reverse all those changes and deduct R&D for state tax purposes!
We get it, it’s a lot of information, which is why we will continue to update you on the R&D capitalization rules and what to expect.
For now, here are the main points you need to know about R&D capitalization:
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The CFOs and Controllers of every innovative company in America have been watching Congress with baited breath all year. As part of Donald Trump's Tax Cuts and Jobs Act (TCJA), the way that American businesses can deduct R&D expenses completely changed this tax year — the new amortization rules will cost innovators dearly.
Because the change was detrimental to companies that have been an engine of growth for America, there was an expectation that the law would be changed before it ever took effect. When a deal was not reached by April, almost every accountant advised clients to extend until October. The thought was that a deal would almost certainly be reached by then — and that it would retroactively forgive the higher rates for this tax year. But, as the Extension Deadline approaches, it's becoming less and less likely that Congress will strike a deal for 2023 taxes.
Here's what Grant Thornton wrote in their newsletter:
"Democrats and Republicans each kept up their share of posturing over the ever-elusive deal to trade child tax credit enhancements for restoring research expensing under Section 174, reinstating 100% bonus depreciation, and providing relief for the Section 163(j) limit on interest deductions. A deal is not likely to come together before government funding is set to expire at the end of September. This will likely leave lawmakers with one-last ditch effort to reach a deal at year-end, well past the extended filing deadlines for calendar-year taxpayers.
All the ingredients remain in place for a compromise: Republicans have signaled they are open to child tax credit relief and Democrats have acknowledged this relief must be proportional to the business provisions. Despite this broad agreement on parameter, lawmakers appear no closer to a deal and still seem reluctant to engage in substantive discussions. The Committee for Responsible Budget tried to jumpstart discussion by unveiling an online tool allowing users to adjust the parameters of the child tax credit to achieve various revenue objectives. The response from lawmakers was muted as they continue to dance around the issue and trade barbs over the costs of each other’s priorities."
Schedule a call with one of our experts if you want to learn more about how Section 174 may affect your taxes this year and how we can help you!
Most people think of the R&D tax credit as a tool to help multinational firms invest in expensive lab work and to help tech companies build innovative new products. But in reality, the R&D tax credit is a piece of legislation designed to incentivize innovation across American industries.
The misconception that the R&D tax credit isn’t for all industries means that a majority of eligible companies are missing out on claiming the money they’re owed. That's why Neo.Tax has created the ultimate guide for Apparel R&D Tax Credits.
If you operate in the apparel space, there's a strong possibility that your business qualifies for the R&D tax credit. To be eligible, you need to meet certain qualifications:
Some ways your business may be eligible for R&D tax credits include the following:
At Neo.Tax, we have the expertise, technology, and resources to simplify the process of claiming tax credits. We specialize in assisting businesses, including those in the apparel space, in identifying and documenting qualified expenses to maximize the value of the R&D tax credit. We stay up-to-date with regulatory changes, ensuring that our clients remain compliant with the relevant tax credit legislation impacting their business.
Don't miss out on potential tax credits. Let Neo.Tax help your business navigate the R&D Tax Credit process with ease. Book a call with us today and see how much money you’re owed!
Most people think of the R&D tax credit as a tool to help multinational firms invest in expensive lab work and to help tech companies build innovative new products. But in reality, the R&D tax credit is a piece of legislation designed to incentivize innovation across American industries.
The misconception that the R&D tax credit isn’t for all industries means that a majority of eligible companies are missing out on claiming the money they’re owed. That's why Neo.Tax has created the ultimate guide for Food and Beverage R&D Tax Credits.
If you operate in the Food and Beverage space, there's a strong possibility that your business qualifies for the R&D tax credit. To be eligible, you need to meet certain qualifications:
Some ways your business may be eligible for R&D tax credits include the following:
At Neo.Tax, we have the expertise, technology, and resources to simplify the process of claiming tax credits. We specialize in assisting businesses, including those in the food and beverage space, in identifying and documenting qualified expenses to maximize the value of the R&D tax credit. We stay up-to-date with regulatory changes, ensuring that our clients remain compliant with the relevant tax credit legislation impacting their business.
Don't miss out on potential tax credits. Let Neo.Tax help your business navigate the R&D Tax Credit process with ease. Book a call with us today and see how much money you’re owed!
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