THE APRIL 18TH TAX DEADLINE IS APPROACHING FAST
DON'T FORGET TO CLAIM YOUR R&D TAX CREDIT! BOOK A CALL TODAY
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By Neo.Tax Team
So you’re a startup and believe the best way to get the help you need to build your company is with independent contractors... hmmm, interesting.
It’s your company, so we’re not here to tell you how to run it, just that you’re missing out on up to $250,000 in research and development tax credits by not setting up payroll.
Yup, you heard that right. You could miss out on hundreds of thousands of dollars because you either haven’t set up payroll or you've set it up incorrectly.
Imagine what you could do with that money. Maybe:
Have no fear, Neo. Tax is here!
Check out our guide to setting up your payroll taxes as a startup or new business.
Let’s be clear: you can report independent contractors on your R&D tax credit claim.
The credit is a percentage of your QREs, also known as qualified research expenditures. These expenditures include in-house research expenses and contracted research expenses. Contract research expenses are handled a bit differently than in-house research. Only 65% of contractor research can be claimed–here’s an example of what that means:
Say I want to research sneaker materials as I’m developing an innovative new style of lifestyle shoe with posture support. I need to get some research from an outside firm; the cost is $100k. When reporting this expense for your R&D credit, only 65% of that independent contractor’s payment will count toward your credit claim. Essentially, $65k of this firm’s bill.
Now, let’s say you realize your needs exceed just research on materials and you contract the same firm to conduct an analysis of the sneaker market and who the target audience for the shoes will be at the same time. The cost is $250k; $100k for research on materials and $150k for the marketing analysis. Typically, marketing expenses are not qualified expenses for the R&D tax credit. This means you can only claim 65% of what you paid to the firm for R&D only–which, in this case, amounts to $100k of the $250k final bill.
The same calculation applies to percentages of time as well. Let’s say the firm bills hourly and states they dedicated 200 hours to R&D at $500/hour, which is one part of the final $250k bill from the firm. It’s then up to you to calculate 65% of those 200 hours that go toward your claim. Again, in this case, you could claim $65k of the firm's bill toward your R&D tax credit.
Remember: as a company that is not yet profitable, your R&D credit comes as a payroll deduction. This means that even if you’re employing independent contractors, you must set up payroll in order to receive your credit.
If you’re already working with an accountant or accounting firm, then they can handle all your payroll needs.
If not, think about getting a payroll provider like Gusto, or learning the ins and outs of payroll yourself.
After you’ve set it all up, find trustworthy R&D tax credit software to help you seamlessly integrate your payroll and accounting information to claim your R&D credit.
Want to learn more about R&D software? Check out our post about what to look for.
More often than not, setting up payroll boils down to these steps:
Now that you’re setting up payroll, it’s a good time to pay extra attention to the details of all your records. The IRS can be fickle, so it’s always better to stay ahead of your payroll filings. Here are some resources to help you along your payroll journey.
Forms:
Payroll can be one of the more complicated processes, making it extremely important to have a solid Payroll Dream Team that will help ensure your company payroll is done accurately and on time! If the ‘92 Men’s Olympic Basketball Team taught us anything, it’s that the Dream Team exists.
This is who you should have on your Payroll Dream Team:
Here are a few more tips for payroll:
Payroll is a fundamental part of claiming your R&D tax credit as a startup or new business. Set it up and watch the R&D credits flow in.
Trust us, it’s worth it!
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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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