# Neo.Tax > Neo.Tax is an AI-powered platform that automates R&D tax credit (IRC Section 41) documentation and software capitalization (ASC 350-40) compliance for technology companies. The platform eliminates manual surveys and engineer interviews by analyzing existing engineering data from tools like Jira, Linear, GitHub, and Azure DevOps to generate audit-ready tax documentation. A full-content version of this file — including the complete text of every published blog post and case study — is available at https://www.neo.tax/llms-full.txt. ## Company Overview Neo.Tax was founded with the belief that taxes can be a strategic advantage for businesses. The company uses artificial intelligence and large language models (LLMs) to transform how companies handle R&D tax compliance—replacing months of manual work with automated, contemporaneous documentation. ### Leadership - **Firas Abuzaid, Co-founder & CTO**: Stanford PhD in machine learning - **Ahmad Ibrahim, Co-founder & CEO**: Former product manager at Intuit QuickBooks ### Investors Fin Capital, SVA, Infinity Ventures, Uncork Capital, Floodgate, Google Ventures, Reuters Ventures ### Notable Customers Mercury, Brex, Notion, Bloomberg Industry Group, Thomson Reuters, Red Ventures, Modern Treasury, Octane, Paysign, WHOOP, OpStart ## Products and Services ### R&D Tax Credit Automation (IRC Section 41) Neo.Tax automates the documentation required to claim federal R&D tax credits under Internal Revenue Code Section 41. The platform: - Integrates with project management tools (Jira, Linear, Azure DevOps) to identify qualified R&D projects - Applies the IRS 4-Part Test to classify projects as Qualified, Partially Qualified, or Unqualified - Uses LLM technology to generate detailed narratives explaining how each project meets IRS requirements - Calculates employee R&D percentages by analyzing time spent on qualified activities - Produces 500+ page audit-ready studies with granular documentation Key benefits: - Startups can claim up to $500,000 annually against payroll taxes - Most companies receive approximately 10% credit on qualified R&D wages - Qualified Small Businesses (under $5M gross receipts) can elect up to $500,000 for payroll tax application - Reduces documentation time from months to days - Requires less than 1 hour total from engineering teams ### Software Capitalization (ASC 350-40) Neo.Tax automates ASC 350-40 compliance for internal-use software development costs: - Integrates with payroll and project management systems - Automatically categorizes expenses across the three development stages (Preliminary, Application Development, Post-implementation) - Determines which costs should be capitalized vs. expensed - Maintains GAAP-compliant records for audits and investor due diligence ### Section 174 R&D Capitalization Neo.Tax helps companies comply with mandatory R&D expense capitalization under Section 174, which requires amortization of R&D costs over 5 years (domestic) or 15 years (foreign). ### Impact of Trump's One Big Beautiful Bill Act (2025) The One Big Beautiful Bill Act (passed 2025) significantly changed R&D tax policy: it restored immediate R&D expensing under Section 174 (retroactive to 2022) and allows companies to take a catch-up deduction on unamortized R&D expenses from 2022–2024 in their 2025 tax year. Neo.Tax has published detailed guidance on these changes and has updated its platform accordingly. ## How the Technology Works Neo.Tax's AI platform analyzes existing organizational data rather than relying on manual surveys or engineer estimates: 1. **Data Integrations**: - Project management tools like Jira, Linear, GitHub, Azure DevOps, and Asana - HRIS/payroll systems (e.g., Workday, Gusto, Rippling, TriNet, Justworks) or via CSV upload - Accounting data (e.g., QuickBooks, NetSuite) or via CSV upload 2. **Project Classification**: Groups tickets into projects and applies IRS qualification criteria 3. **LLM-Powered Analysis**: Generates detailed narratives and validates data quality 4. **Calculation Engine**: Computes qualified expenses, employee R&D percentages, and credit amounts 5. **Documentation Generation**: Produces comprehensive audit-ready studies The system handles messy and incomplete data, identifies duplicates and errors, and works passively without requiring changes to engineering workflows. ## Security and Compliance ### Certifications - SOC 2 Type II - ISO 27001:2022 - GDPR compliant ### Data Protection - All data encrypted in transit (TLS v1.3) and at rest (AES-256) - PostgreSQL databases hosted on AWS with 99.999%+ durability - 30-day point-in-time recovery - Role-based access controls (RBAC) - Multi-factor authentication - SSO support (Google, Microsoft OAuth, SAML 2.0/OIDC) - PII redaction options ### Enterprise Features - Dedicated cloud infrastructure - Customer-managed encryption keys - Private connectivity options - Custom security controls ## Partnerships ### Mercury Partnership Mercury customers receive 25% off Neo.Tax services (first-time customers). The integration provides streamlined R&D tax credit and software capitalization documentation for Mercury's fintech customer base. ### Deel Partnership Deel customers receive 25% off Neo.Tax services (first-time customers). Neo.Tax partners with Deel to help companies with international teams manage R&D tax compliance. ### Subscript Partnership Subscript customers receive 25% off Neo.Tax services (first-time customers). The integration provides streamlined R&D tax credit and software capitalization documentation for their customer base. ## Key Tax Information ### R&D Tax Credit Eligibility (IRC Section 41) Companies qualify if they: - Develop or improve products, processes, software, techniques, formulas, or inventions - Face technological uncertainty - Engage in a process of experimentation - Pursue work that is technological in nature ### Qualified Expenses - R&D wages and salaries - Qualified contract research expenses (65% of contractor costs) - Cloud computing processing costs (AWS, Google Cloud, Azure) ### Calculation Methods - **Regular Method**: ~10% credit for qualified research costs - **Alternative Simplified Method**: Higher percentages for companies with 3+ years R&D history (up to ~14% by year 4-5) ### Payroll Tax Election Qualified Small Businesses (QSBs) can apply R&D credits against payroll taxes: - Must have less than $5 million in gross receipts - No gross receipts in five years prior to credit year - Can elect up to $500,000 annually (increased from $250,000 by the Inflation Reduction Act) ## Contact Information - **Website**: https://neo.tax - **Email**: support@neo.tax - **Help Center**: https://help.neo.tax - **Trust Center**: https://trust.neo.tax - **Status Page**: https://status.neo.tax ## Important Links - [Homepage](https://www.neo.tax) - [About Us](https://www.neo.tax/about-us) - [R&D Tax Credit Methodology](https://www.neo.tax/how-it-works-rd) - [ASC 350-40 Methodology](https://www.neo.tax/how-it-works-asc) - [Security](https://www.neo.tax/security) - [Contact Us](https://www.neo.tax/contact-us) - [Case Studies](https://www.neo.tax/case-studies) - [Blog](https://www.neo.tax/blog) - [R&D Tax Code Overview](https://www.neo.tax/legal/r-d-tax-code-overview) - [Privacy Policy](https://www.neo.tax/legal/privacy-policy) - [Terms of Service](https://www.neo.tax/legal/terms-of-service) ## Partner Pages - [Mercury × Neo.Tax](https://www.neo.tax/partners/mercury) — 25% off for Mercury customers - [Deel × Neo.Tax](https://www.neo.tax/partners/deel) — 25% off for Deel customers - [Subscript × Neo.Tax](https://www.neo.tax/partners/subscript) — 25% off for Subscript customers ## Case Studies - [Mercury Case Study](https://www.neo.tax/case-studies/mercury) — $3.5B fintech achieved ~10% YoY R&D credit increase with less than 1 hour of engineer time - [Notion Case Study](https://www.neo.tax/case-studies/notion) — $11B productivity platform scaled R&D credit documentation as engineering projects tripled; ~60% reduction in PM interviews, 20+ hours saved - [Modern Treasury Case Study](https://www.neo.tax/case-studies/modern-treasury) - [Octane Case Study](https://www.neo.tax/case-studies/octane) - [Red Ventures Case Study](https://www.neo.tax/case-studies/red-ventures) ## Frequently Asked Questions ### What is Neo.Tax? Neo.Tax is an AI-powered tax automation platform that helps technology companies claim R&D tax credits and manage software capitalization compliance without manual surveys or engineer interviews. ### How much can my company save with R&D tax credits? Most companies receive approximately 10% of qualified R&D wages as a credit. Startups can claim up to $500,000 annually against payroll taxes. The exact amount depends on qualified expenses, company size, and calculation method used. ### Does claiming R&D tax credits increase audit risk? No. Since 2012, R&D tax credits have not carried a high-risk designation from the IRS. Neo.Tax's contemporaneous documentation approach provides audit-ready studies that meet IRS standards. ### What tools does Neo.Tax integrate with? Neo.Tax integrates with Jira, Linear, GitHub, Azure DevOps, and various payroll systems to automatically gather the data needed for R&D tax credit documentation. ### How long does the process take? Traditional R&D tax credit studies take months of surveys and interviews. Neo.Tax reduces this to days, requiring less than 1 hour total from engineering teams. ### What is ASC 350-40? ASC 350-40 is the GAAP accounting standard governing how companies should treat costs for developing internal-use software—determining whether expenses should be capitalized or expensed based on the development stage. ### What is Section 174 R&D Capitalization? Section 174 historically required companies to capitalize and amortize R&D expenses over 5 years (domestic) or 15 years (foreign). The One Big Beautiful Bill Act (2025) restored immediate expensing retroactive to 2022, significantly improving cash flow for R&D-intensive companies. ### What changed with the One Big Beautiful Bill Act? The 2025 legislation restored immediate R&D expensing under Section 174 (retroactive to 2022) and allows companies to claim a catch-up deduction on unamortized R&D expenses from 2022–2024 in their 2025 tax year. Neo.Tax has updated guidance and platform support for these changes. ## Blog Topics Neo.Tax's blog covers: - R&D tax credit guidance and IRS updates (including new Form 6765 requirements effective 2024) - One Big Beautiful Bill Act analysis and what it means for R&D tax filers - Section 174 capitalization requirements and restoration - Software capitalization (ASC 350-40) best practices - Form 6765 and Form 8974 filing instructions (by payroll provider: Gusto, Rippling, ADP, TriNet, Justworks, Sequoia One, QuickBooks, Zenefits) - State R&D tax credit information - CFO interviews and finance leadership insights (CF0to1 series) - Industry-specific R&D credit guidance (fintech, healthtech, manufacturing, agriculture, food & beverage, life sciences, retail, and more) - Tax deadline reminders and compliance tips --- # Full Site Content This section contains the full text of published content on https://www.neo.tax, regenerated automatically at build time. ## Blog Posts ### A Big Four Logo Is Not Documentation URL: https://www.neo.tax/blog/a-big-four-logo-is-not-documentation Published: 2026-07-08 Author: Stephen Yarbrough, CPA Category: R&D Tax Credits A multinational manufacturer hired one of the largest accounting firms in the world to build its R&D credit study. It was thorough by the traditional standards. However, neither the company nor the accounting firm could provide documentation sufficient to support the credit once it was scrutinized by the IRS. Kyocera AVX claimed $398,985 in research credit for 2018. A Big Four multiyear study pushed that number to roughly $1.7 million. To get there, the firm interviewed 36 subject-matter experts after the year had already closed and used what those people remembered to represent the work of about 1,200 employees, with no time tracking and expense allocations built on estimates. When the government subpoenaed the underlying source documents and survey responses, nobody could produce those either. The IRS moved for summary judgment and called the study hearsay on many levels. The case is now headed to Tax Court, and the government has countersued for a $13.36 million refund it says was paid in error. Nothing is decided yet, but Kyocera is now fighting on two fronts: the credit it claimed and the money it already has in hand. I helped prepare R&D credit studies for several clients at a Big Four firms early in my career. Later I examined those same kinds of studies as a senior revenue agent in the IRS's Large Business and International division. These days I'm working with engineers and data scientists to build tools meant to replace the interview-heavy model. What I took from my years as an examiner is blunt: the IRS doesn’t care whose name is on the cover of a credit study. They care whether the numbers tie back to something real. A polished report built on someone's memory of what happened is, at the end of the day, just a memory (and often hazy memories, at that)! An adage I picked up from a TEI conference was “pave the road with documentation, and fill the potholes with interview notes”. In Kyocera, the interviews were the road, and there was no pavement underneath. Interviews have a legitimate role - they can supplement and explain the gaps in the contemporaneous records - but they cannot be the record. The IRS has said as much for more than two decades, going back to Eustace in 2002 and reinforced in its own audit guidance. And the bar keeps rising: the four-part test demands activity-level proof that a real process of experimentation occurred, not a percentage an engineer estimated a year after the fact. So why do traditional studies still lean so heavily on interviews? Not because anyone is cutting corners. Until recently, it was the only practical way to translate the work. Engineers document to build things, not to satisfy Section 41; their records are technical, non-linear, and written in the language of engineering, and someone has to re-map all of it to the four-part test. Sitting an accountant down with an engineer was the efficient way to do that - until the scale of a large multinational's data made it impossible to do by hand. No team can manually read tens of thousands of tickets and commits, so they sample, interview, and estimate. It was a reasonable answer to a hard problem. It just isn't the best one anymore. But that mountain of data is also where the fix is. If your company runs on Jira, GitHub, or any modern project system, you're already generating exactly the record the IRS prefers: timestamped entries showing what got built, when, by whom, and how it changed. Build the study on top of that, and interviews can go back to filling potholes instead of paving the road. Your best engineers stop losing a week in conference rooms trying to reconstruct work they finished months ago, and the study underneath the credit is stronger for it. This isn't about claiming a bigger number. It's about claiming the right number – sometimes more than the interview method would find, sometimes less - and being able to stand behind every dollar of it if an examiner ever asks. That's the standard I held taxpayers to at the IRS, and it's the standard a credible study should meet today. We built Neo.Tax's platform around this, but you don't need our software to take the lesson from Kyocera. Before you engage a firm to prepare your next R&D study, ask whoever prepares it one thing: if the IRS asked for the documentation behind every number in here tomorrow, could you produce it? If the honest answer depends on what somebody remembers, you're one audit away from finding out the hard way. --- ### Neo.Talent: Founding Data Scientist, ML Engineer Mehmet Şeflek's Unfair Advantage URL: https://www.neo.tax/blog/neo-talent-founding-data-scientist-ml-engineer-mehmet-seflek-s-unfair-advantage Published: 2026-06-24 Author: Neo.Tax Category: Neo.Talent Summary: A Master's in public admin at Harvard and a Ph.D. in econ at Berkeley rather than a computer science track gave Mehmet a different way to look at AI and tax. Mehmet Şeflek never planned on working in machine learning or in tax. He studied economics at the University of California, Berkeley, went on to the Kennedy School at Harvard for a Master's in public administration, and returned to Berkeley for a Ph.D. in business economics. He was drawn to a particular kind of question: how companies actually work on the inside. "I was fascinated by the economics of the firm. Why companies organize themselves the way they do, how all the moving parts fit together," he says. "It's the thing I always came back to." By the time he was deep into the Ph.D., though, the pull had shifted from studying companies to building. "I realized I liked building out of data a lot more than I liked writing about it," he says. So he took a role at a health-tech startup, and not long after, an old friend, Neo.Tax cofounder Ibrahim, reached out about a company he'd just founded. The pull toward business wasn't new. "I come from a family of small-business owners, in Türkiye and here in the U.S. I grew up around the realities of running a company: payroll, accounting, taxes, long before I ever studied any of it formally," Mehmet says. That fascination with the firm is also what drew him to tax. "There's no more intimate representation of a company than its taxes," he says. "To file correctly you have to understand every transaction, every project, how the whole organization spends its time and money. If you want to model the inner workings of a business, tax is about the richest picture you'll find." ### **Helping Build Neo.Tax** Mehmet joined in 2020, when the team was just getting started, helping build the machine-learning platform Neo.Tax would grow on. The company started with R&D credits for startups; within a few years, the LLM-powered tool was handling ASC 350-40 and R&D credits for enterprise companies. Coming at engineering from economics rather than a pure computer science track gave Mehmet a different way into the problem. "Econ and ML are basically the same instinct," he says. "You take a messy pile of data and pull out a decision you can defend. Tax just turned out to be that problem in a particularly demanding form." The fit was obvious to him: tax is a vast body of rules applied to an even vaster pile of company data, exactly the conditions where machine learning earns its keep. "I was the first full-time hire, so I built the whole machine-learning function from basically nothing, and stayed long enough to watch it survive contact with the real world at scale," he says. "And the field changed completely underneath me. We went from hand-curating datasets and training models from scratch to fine-tuning LLMs trained on the entire internet. The entry cost to a working model collapsed; now you can point an LLM at a problem and get to a starting point in an afternoon." But a plausible-sounding output is not the same as a correct one, and that gap is exactly where Mehmet's work lives. "That's the trap with these models," he says. "The output comes back fluent, confident, well-formatted, and it looks like an answer. Then you dig into it and realize a good chunk of it is nonsense. The polish is the dangerous part, because it's what stops people from checking."  ### Skepticism as an *Unfair Advantage* It's a problem he's unusually equipped to catch. Trained as an economist, his instinct is to distrust any number until he knows how it was produced. "It's easy to get wowed by the latest model from Anthropic or OpenAI," he says. "But the question I come back to is: how would we even know if it's wrong?" In tax, where being wrong carries real consequences, that means building systems that interrogate not just whether an answer is right, but how the model arrived at it. "And you only build that instinct working somewhere where the cost of being wrong is real." These days, that conviction is pulling Mehmet deeper into the engineering itself. Lately he's been building out the infrastructure that lets models like these run at scale. It's the part where his two worlds meet. "In economics, a theory or an empirical result can be beautiful on paper and still fall apart the moment it hits real-world budgetary, implementation, and time constraints," he says. "Inference engineering feels like that. The model is the theory. Making it run fast and cheap and reliable enough that people can depend on it is the policy implementation. That's where it either works or it doesn't." The tech world is still sometimes thought of as a place where *move fast and break things* is the law of the land. But tax is different — a hallucinated output that leads to an audit can break a client’s trust in your tool forever. So, to build an AI-powered tool that can revolutionize the tax space, you need to start from a place of skepticism and move with the diligence of a scholar.  Luckily for Neo.Tax, Mehmet Şeflek is Neo.Tax’s founding data scientist and machine learning engineer. --- ### The "New to You" Rule and How George v. Commissioner Expands It URL: https://www.neo.tax/blog/the-new-to-you-rule Published: 2026-06-11 Author: Neo.Tax Category: Education & Resources At a TEI conference last month, we were asked a question repeatedly: “Can I claim this in my R&D credit even if the technology already exists?” If tax experts are still confused, it’s clear that this part of the R&D credit needs some clarification. So, the short answer: Yes. But let’s get a little deeper and explain the *why*: ## **The “New to You” Rule** Every expense that you’re including in [your R&D filing has to pass the IRS’s 4-Part Test](https://www.neo.tax/blog/how-neo-tax-solved-the-r-d-qualification-process):  1. be technical in nature 2. be created for a qualified purpose 3. work to solve a problem with technical uncertainty 4. involve a process of experimentation But what if the experimentation is being done to solve a problem that another company has already solved? So long as the R&D is in pursuit of an answer that is not common knowledge (i.e. you can Google and find an instruction manual that answers all your questions, or locate a how-to guide on a competitor’s website), your company’s expenditures chasing that solution are qualified. The key takeaway is that even if a competitor has already solved the problem, your research can still qualify so long as when you began the research stage, you faced genuine uncertainty about the capability, method, or appropriate design for your own version of the product or process. Think of it this way: Casper was the first “bed-in-a-box” manufacturer. They figured out how to shrink wrap a mattress and then send it to a customer in the mail. Now, many competitors have spent tens of millions in R&D chasing the same technology. Each has a unique set of circumstances they have to experiment around — everything from material that can shrink and expand, to durability, to construction of the expanded mattress, to shrink-wrap process. None of these discoveries will necessarily be novel, but all of the experimentation is in pursuit of processes and products that would otherwise be unknown to the company without R&D. Thus, all that expenditure is categorized as a qualified expense. ## **How *George v. Commissioner* Pushes This Further** The chicken producer George's of Missouri, Inc. ran large-scale, in-house poultry trials testing on vendor-supplied vaccines, drugs, and feed additives which had, in many cases, already been tested and proven effective in vendor laboratories. In *George v. Commissioner*, [the IRS argued](https://www.currentfederaltaxdevelopments.com/blog/2026/2/3/which-came-first-the-research-or-the-credit-study-an-analysis-of-george-v-commissioner) that because the products that George’s was buying had already been proven effective, there was no remaining “uncertainty” for the company to resolve. But George’s argued that before deploying vaccines, drugs, and feed additives in their Missouri-based operation, they needed to do these large-scale tests in the field to guarantee that the products worked the same in their specific operating conditions as they had in sterile labs. George's operations involved fluctuating temperatures, differing farm conditions, varying biological interactions, and full-flock biological variability. The [tax court ruled in favor of George’s](https://www.taxcontroversy360.com/2026/05/pilot-models-at-scale-what-george-v-commissioner-teaches-about-the-research-credit/) because the judge agreed that those real-world variables could materially affect outcomes, so the uncertainty that mattered in terms of R&D qualification was the *taxpayer’s* — not the vendor's. The effect of that ruling is massive for any industry — not just chicken producers.  What it means is that if a certain process or technology is “new to you” then R&D expenditures made to test for that uncertainty are qualified expenses. If George’s could test that the feeds, vaccines, and drugs worked in their specific circumstances then, of course, another mattress producer can claim expenditures for testing the best way to shrink wrap and ship their specific type of mattress. Basically: “New to you” has been expanded to include “new to your specific situation.” ## **The tl;dr** The big takeaway that companies should understand is that R&D expenditures made to refine or catch up on features that might already be offered by competitors can still be claimed as qualified expenses. You don’t have to be inventing the wheel to claim an R&D credit; you just have to be reimagining how it might work on your specific car. The key is to find an R&D tax credit filing system that understands the most up-to-date intricacies of IRS guidances and tax case law, and that can integrate that into a filing right away. Luckily for you, Neo.Tax can do just that. --- ### Can Claude Do My R&D Tax Credit for Me? URL: https://www.neo.tax/blog/why-you-cant-ask-your-favorite-llm-for-an-r-d-tax-credit Published: 2026-06-04 Author: Firas Abuzaid Category: Education & Resources Summary: Frontier LLMs can get impressively close to an R&D tax credit—but close doesn’t fly with the IRS. Why a defensible filing demands a specialized, auditable AI pipeline. These days, it feels like Large Language Models (LLMs) are improving constantly. OpenAI released [GPT 5.5](https://openai.com/index/introducing-gpt-5-5/) in late April; one month later, one of their internal models [solved a problem in discrete geometry](https://openai.com/index/model-disproves-discrete-geometry-conjecture/) that had bamboozled mathematicians for the last 80 years. Not to be outdone, Anthropic started [Project Glasswing](https://www.anthropic.com/glasswing) to secure codebases all over the world by leveraging their private Mythos model. They also countered GPT 5.5 with [Opus 4.8](https://www.anthropic.com/news/claude-opus-4-8), which dropped a week ago, and it’s been receiving [rave](https://every.to/vibe-check/opus-4-8-vibecheck) [reviews](https://simonwillison.net/2026/May/28/claude-opus-4-8/). More importantly, enterprises have begun to fully embrace Claude Code and OpenAI Codex in their day-to-day operations, and their widespread adoption portends a future where knowledge work will always be AI-assisted, if not fully automated. The appetite for AI has never been greater. Of course, the accounting and tax world is [not immune](https://www.pwc.com/us/en/technology/alliances/anthropic.html) to these trends. Which is why lately we’ve been asked the same question over and over in our sales calls: > Why can’t I just ask Claude/Codex/Copilot/OpenClaw to file my R&D Tax Credit for me? If it can build and deploy an app from scratch, can it take care of that, too? The short answer is No. The longer answer gets to the heart of what we’re building at Neo.Tax. ## **Tokens are Cheap (Note: Although if you [read the news](https://www.wsj.com/tech/ai/corporate-america-is-starting-to-ration-ai-as-cost-skyrockets-1eb99d7a), you’ll notice that’s changing, too!). Correctness is not.** First off, we should acknowledge: the question is not a crazy one. In fact, as a company that exists at the center of the AI + Tax revolution, we understand it better than anyone. LLMs can now automate lots of easy accounting responsibilities—and even some more complicated, long-running tasks, too. With the [right prompts](https://github.com/robbalian/claude-tax-filing), you can coax Claude or Codex into handling your personal tax return; it’ll certainly do a good enough job, especially for basic W-2 returns. But the problem is, “good enough” is simply not enough for business taxes. When it comes to maximizing credits while minimizing risk, customers demand perfection. An off-the-shelf LLM can get impressively close to an answer—but will it get it right every single time? And, for certain details that can’t always be found, will it hallucinate? Will it fill in the blanks with guestimates or full-on fabrications to complete your R&D Tax Credit? That obviously doesn’t fly for our customers; they need something much more reliable and—more importantly—*auditable*. And a log of every message and tool call from a session with Claude or Codex won’t suffice for the IRS. They need hard evidence that justifies every aspect of the credit filing, down to each employee who worked on R&D. ## **Mind the Context Window** LLMs are ingenious at solving problems within a narrow context. And the frontier labs are hard at work to expand the context windows of their models, so they can handle bigger and bigger problems. (Note: Claude Opus 4.8 has a context window of [1M tokens](https://platform.claude.com/docs/en/about-claude/models/whats-new-claude-4-8), enough to digest entire books!) Unfortunately, though, there’s no such thing as a free lunch: as you feed the LLM more and more input tokens to take advantage of that larger context window, its performance starts to degrade, and the LLM fails to understand the connective tissue and patterns that are required to arrive at the correct answer. This “[context rot](https://www.trychroma.com/research/context-rot)” phenomenon has been well-documented in [various](https://www.understandingai.org/p/context-rot-the-emerging-challenge) [venues](https://blog.box.com/context-rot-silent-threat-ai-accuracy) online, and it’s especially prevalent for needle-in-the-haystack queries that often come up in the world of tax and accounting. As we explained earlier, perfect is the only *good enough* for the IRS, and as the input data scales, simply dumping all that data into an LLM will take you further from perfection. That’s why context engineering is key. It’s not just the volume of data, however; it turns out that project management data poses a unique set of *qualitative* challenges at scale, too. Here’s a smattering of the problems we’ve faced at Neo.Tax when analyzing the ticketing data of our customers: 1. **Finding Signal in the Noise:** If you ask an LLM to summarize a large (Note: How large? Think on the order of thousands, or even tens of thousands of tickets.) set of Jira tickets into a title and description, it will do an excellent job of finding the “average” of those tickets, so to speak, and generating text that’s coherent and acceptable to the untrained eye. But that’s not what customers need. For example, if a bug fix ticket has a much longer description because it contains a lengthy stacktrace, should that be given more weight? What if it only took one day to resolve—should that matter in the summarization output? There’s a basic but critical intuition at play here that is hard for any LLM to comprehend: some tickets are more important than others. And, to generate descriptions that are semantically meaningful to the customer, you have to discern the important from the insignificant. Otherwise, you’ll just end up with AI slop. The problem only gets worse as the number of tickets increases—which is precisely when the value of using AI ought to be the highest. 2. **Handling Business Idiosyncrasies:** The kind of information that's relevant for determining what’s eligible for an R&D tax credit varies greatly from one company to another. This means that any system that wants to automate this process must be adaptive and flexible in fetching the relevant context. Even within the same company, different teams will use their project management systems in different ways and adopt different conventions. And, at Neo.Tax, we have a strict rule: we do **not** ask the customer to follow a new set of conventions to use our software. They shouldn’t adapt to us—we adapt to them. To accomplish that, there has to be some level of intelligence *around* the LLM, so that we can tailor our outputs to take the customer’s unique usage patterns into account. That way, we can determine when to focus within teams and adjust accordingly, and when to look *across* teams to leverage broader patterns that should be captured for a whole organization. 3. **Categorizing Requires Broader Context:** It may not seem like this at first glance, but ticketing data is actually network data. There are all sorts of linkages between tickets: parent-child, blocking/blocked-by, and related-to, to name a few. And these relationships and hierarchies matter quite a bit to our customers; ignoring the edges in the network and treating all tickets as atomized inputs turns out to produce poor results. (Note: We know because we tried!) This may be the most challenging aspect of analyzing, categorizing, and grouping tickets, which off-the-shelf LLMs are not always well suited for. For each ticket, the amount of potentially relevant information can explode, which means you need a specialized strategy to identify which related tickets are relevant for determining R&D projects. ## **A Complex Problem Calls for a Specialized Approach** As you start to understand the challenge of digesting and analyzing hundreds of thousands of tickets into relevant projects—which then must be judged as qualified or unqualified for the sake of an R&D tax credit—you realize why a specialized approach is not just preferred but necessary. To that end, our engineers and data scientists have built a pipeline of AI models and algorithms to analyze all this project management data using a bottoms-up approach. Our pipeline includes both proprietary models and off-the-shelf LLMs, and, from end to end, our harness guides the models to the correct results while also allowing for customization to the business’s needs. When a customer onboards to Neo.Tax, we learn how their project management systems are organized, and use that information to adapt our algorithms to their data. By taking the time to understand the customer’s specific concerns, Neo.Tax can solve R&D at scale reliably and accurately. Our approach was built with four principles in mind: **1. Infinite scalability.** *Our system becomes more reliable as it ingests more data.* If that sounds like it contradicts the context rot problem we described above, that's the point! A naive setup degrades with scale because a single model has to hold the entire haystack in its head at once. Our pipeline never does that—it never asks a single model to hold the whole haystack in its context window. That means the broader dataset becomes a source of statistical grounding rather than noise. The more tickets we see from a given team, the more confidently we can establish their baseline—what routine maintenance looks like for them versus genuine technical experimentation—and the sharper our judgment about what actually qualifies. At scale, volume stops being a liability and becomes the very thing that makes us accurate. **2. Reproducibility and auditability**: *Your favorite LLM might produce a "good enough" filing. Prompt it again and you'll get a different one, with no way to explain the difference.* Auditability isn't a feature we bolt on; it's an essential property of how the pipeline is built. Every project we surface traces back to the specific tickets, the specific employees, and the specific time allocations that justify it, so a tax team can defend any line of the filing down to its source. And because the pipeline is deterministic where it counts, running it twice yields the same result. When the inputs do change, you can diff two runs and see exactly which tickets moved the dollar figure and why. A chat transcript with Claude can't give you that, but a structured, versioned audit trail can—and that's the difference between a number you filed and a number you can defend in an examination. **3. Maximizing quality while minimizing cost**: *When there’s a hammer in your toolbelt (i.e., a frontier-level LLM), everything starts to look like a nail.* The reason dumping a year of data into a frontier model is so expensive isn't just the token bill. It's that you're paying premium rates for the most powerful model in the world to do work a cheap, deterministic algorithm could handle perfectly. Our pipeline routes the bulk of the job through fast and inexpensive deterministic steps, and reserves expensive model calls for the genuinely ambiguous judgment calls where these powerful tools actually earn their keep. The result is that cost scales with the number of hard decisions, not the raw volume of data. You get frontier-model precision exactly where it matters, and nowhere it doesn't. **4. Privacy and security first and foremost**: *We have to earn the customer’s right to share their proprietary data with us.* No business is going to hand over a year of payroll and project data to a general-purpose chatbot, and they shouldn't have to. That’s why we never pass any PII data to any of our models. Each Neo.Tax customer's data is isolated, encrypted both in transit and at rest, and accessible only on a scoped, need-to-know basis—and we retain only what a defensible filing actually requires. We don't ask you to take our word for it, either: Neo.Tax is SOC 2 Type II and ISO 27001 certified, so our controls are independently audited against the standards your security team already knows. You can read more about our security posture [here](/#security) or visit our [Trust Center](https://trust.neo.tax). The frontier labs have built genuinely astonishing tools, and where they make sense, we use them, too. But "general purpose" and "correct every single time, and defensible to an auditor" are two very different problems. A model that can write you a sonnet, plan your honeymoon, and ship a web app is a marvel; it is not, on its own, an R&D tax credit engine. Turning hundreds of thousands (or even millions) of messy tickets into a filing you can stake a number on is the problem we set out to solve—and the only one we're trying to solve. (Except for software capitalization! We built a second [dedicated solution](/how-it-works-asc) just for that.) So when a customer asks whether Claude can file their R&D credit for them, our answer is the same one we'd give about building it in-house: you could get close. We will get it right. And if problems like these—context engineering at scale, deterministic pipelines wrapped around frontier models, network-structured data that refuses to behave—sound like the kind of thing you'd want to spend your days on, we're hiring! We're looking for Senior Software Engineers and Data Scientists to help us build it. Come [join us](/careers). --- ### How Neo.Tax’s AI Solution Solves FIN 48 URL: https://www.neo.tax/blog/how-neo-tax-s-ai-solution-solves-fin-48 Published: 2026-05-28 Author: Neo.Tax Category: Product & Company Updates Summary: What was once was the province of quarterly guestimations can now be understood with a level of detail never before possible at scale. When we [spoke with Alex Song, who was then-VP of Finance and Capital Markets at Ramp](https://www.neo.tax/blog/cf0to1-alex-song-vp-of-finance-and-capital-markets-at-ramp), he recommended a book called _The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success_. “The main thesis is that your job as a CEO or a management team is capital allocation and thinking through how to efficiently allocate capital,” he explained. “Ultimately, that's the role that finance plays: as a startup, you are constantly making a series of short-term and long-term bets.” Throughout the conversation, Alex continually stressed the value of making finance a strategic part of your business. But in order to be strategic, you need to be able to understand and track your own internal financial situation. As he explained: good reporting is table stakes for a growing business. “And I don't mean just accounting. Accounting is essential, but you also need good business intelligence, good internal reporting, and good metrics,” he said. “If you can't collect and measure good data, you can't make good decisions.” One of the largest (and least discussed) advantages of AI in tax and accounting is the ability to have a real-time view of your business’s financial situation. By integrating payroll and project-management software into a machine-learning LLM, Neo.Tax can give a company a real-time view of their R&D tax situation. What was once was the province of quarterly _guestimations_ can now be understood with a level of detail never before possible at scale. Perhaps nowhere is that advantage more clearly demonstrated than when it comes to FIN 48. ## **What is FIN 48?** In 2006, the Financial Accounting Standards Board (FASB) released the FIN 48 guidance, stating that all income tax benefits had to be weighed based on a More Likely Than Not (MLTN) standard of actually accruing at the end of the tax year. In 2008, that GAAP standard expanded from publicly traded companies to all companies.  MLTN Measurement is a three-step process: 1. Determine possible outcomes of each position, 2. Determine the likelihood of such outcome, and 3. Determine the outcome that is most favorable with a cumulative likelihood of more than 50%. The standard is hard to reach without insight into each R&D project. Many companies rely on last year’s filing and hope they’re close enough. But underestimating your income tax position risks painful interest payments or audits.  Put more simply, FIN 48 means that companies have to stash away enough money to cover the maximum amount of income tax they’re likely to pay. In practice, that means that companies with less clarity into their tax situation often overestimate their income tax positions, keeping a sizable percentage of their operating budget out of play during the tax year. ## **How Neo.Tax’s AI Solution Changes FIN 48?** But what if a company could have real-time insights into their R&D process at a project-by-project level?  That’s what Neo.Tax has unlocked with our AI-empowered solution. By integrating with project management and payroll systems, our machine-learning LLM can sort engineering’s work into projects and weigh expenses against the IRS’s 4-Part Test in real-time throughout the year.  FIN 48 created a situation where companies needed to provide a level of detail in their accounting that was hard to manage. MLTN tests had to be applied to any tax benefit, and then, in cases where there is a relatively large chance that the benefit will not be accepted (let’s say 30-40%), they’d need to interview relevant engineers to further bolster their claim. It became a time-consuming process, where effort-expenditure by the finance and engineering sides had to be weighed against the strategic advantage of maximizing credits and the amount of capital that could be used throughout a tax year. This is why AI is a gamechanger. Having real-time reporting in the hands of your company’s finance team is a massive strategic advantage. As Alex Song explained: “Accounting is essential, but you also need good business intelligence, good internal reporting, and good metrics. If you can't collect and measure good data, you can't make good decisions.” Neo.Tax has created a business intelligence tool that can arm companies to make the most valuable decisions throughout the entire fiscal year. --- ### For Tax Executives, the Real Risk Isn’t AI. It’s Documentation You Can’t Defend URL: https://www.neo.tax/blog/for-tax-executives-the-real-risk-isnt-ai-its-documentation-you-cant-defend Published: 2026-04-06 Author: Neo.Tax Category: Education & Resources Summary: The best use of AI in tax compliance is not to hide complexity behind automation. When built the right way, AI is not the black box. It is the mechanism that helps open one. Tax executives are right to be cautious about AI in tax compliance. In a high-stakes area like the R&D credit, nobody wants a system thatproduces an answer but cannot explain how it got there. That concern is reasonable. Treasury regulations require taxpayers claiming the research credit to retain records in usable detail, and the IRS continues to push toward more granular, business-component-level substantiation through Form 6765 and related refund-claim requirements. But that is exactly why the conversation around AI in tax needs to be reframed. The right question is not whether AI is involved. The right question is whether the process is explainable, controlled, and auditable. If a system can show the source data it relied on, document the steps it followed, preserve changes over time, and produce support that ties back to contemporaneous business records, that system is far more defensible than one that simply depends on human recollection after the fact. That is true whether the“processor” is a machine-learning model, a spreadsheet, or a room full of subject matter experts. This is an inference drawn from the IRS substantiation rules and the agency’s stated focus on contemporaneous books and records. That distinction matters more than ever for R&D credit claims. The IRS has long required taxpayers to substantiate both qualified activities and qualified research expenses with records in sufficient detail. The IRS’s own audit guidance says contemporaneous books and records should form the basis of an examination, and that estimates are not a substitute where better records exist. The current Form 6765 developments push in the same direction: more project-level detail, more business-component specificity, and more clarity around what was done, by whom, and at what cost. That is one reason the traditional R&D study model is under pressure. For years, many large companies relied on a familiar process: interview engineers and managers well after the tax year closed, ask them to estimate how time was spent, and build a narrative from memory. In many cases, that was the practical reality. But the ongoing Kyocera dispute has put a spotlight on the weaknesses of that model. As described by Bloomberg Tax and Tax Executive, the IRS challenged an interview-based Big Four study that involved retrospective SME input, estimated allocations, and limited contemporaneous support, arguing the claim lacked sufficient documentation. Tax Executive’s summary of the caseputs the lesson neatly: documentation should “pave the road,” while interviews should only “fill the potholes.” That is why we think calling AI a “black box” often misses the real issue. In many traditional studies, the actual black box is the human process. If a tax team is asked, during audit, to defend why a certain percentage was assigned to an employee or why a project narrative reads the way it does, “because someone remembered it later” is not a strong answer. By contrast, a modern system built on contemporaneous operational data can be far more transparent if it shows the underlying tickets, project relationships, payroll ties, and review history that led to the result. This is an inference based on the Neo.Tax product architecture and the IRS’s emphasis on contemporaneous substantiation. That is the problem Neo.Tax was built to solve. Neo.Tax starts with the data companies already generate in the ordinary course of business: ticketing data from systems like Jira, Linear, and AzureDevOps, along with payroll, vendor, and financial data. Our AI analyzes tens to hundreds of thousands of tickets, groups work into project buckets using both textual and structural signals, evaluates those projects against the Section 41 framework, and then helps generate project narratives and employee-level percentages tied to qualified work. Because the system is designed for messy, real-world data, it does not depend on engineers tagging everything perfectly or filling out quarterly surveys just to support the tax file. Just as important, Neo.Tax is designed to show its work. We built an audit log because tax compliance is not just about the final output. It is about lineage. A tax executive should be able to ask: What did the calculation look like on a certain date? Who changed an allocation? When was that change made? What was the source data before and after the revision? Neo.Tax’s audit log is meant to preserve that history so the filing process is not just automated, but reviewable and explainable. In other words, the system is built with the expectation that someone may need to defend it later. This is especially important for tax departments evaluating AI vendors. The standard should not be “Does it use AI?” The standard should be: Can it follow a disciplined methodology? Can it operate within clear guardrails? Can it tie conclusions back to contemporaneous source records? Can it preserve an audit trail? Can a tax professional review the result, understand the basis for it, and explain it to an examiner? In tax, accuracy matters, but process matters too. A fast answer without defensibility is not a win. This framing is grounded in the IRS record keeping rules and the stated Neo.Tax design principle of transparency. For tax executives, that is the practical takeaway. AI should not replace judgment. It should improve the evidence base behind that judgment. The best use of AI in tax compliance is not to hide complexity behind automation. It is to make a complicated compliance process more consistent, more scalable, and more audit-ready by organizing the underlying facts better than a manual process can. When built the right way, AI is not the black box. It is the mechanism that helps open one. This conclusion is an inference from the sources above, especially the IRS emphasis on contemporaneous substantiation and Neo.Tax’s focus on transparency, ticket-level analysis, and audit-log lineage. --- ### Cracking the Code on Software Capitalization URL: https://www.neo.tax/blog/cracking-the-code-on-software-capitalization Published: 2026-02-05 Author: Neo.Tax Category: Product & Company Updates Summary: Software capitalization under ASC 350-40 presents a complex compliance challenge for even the most sophisticated software companies. So, we decided to approach capitalization as a data-driven machine learning problem. Here’s how we did it. Software capitalization under [ASC 350-40](https://finquery.com/blog/asc-350-internal-use-software-accounting-fasb/) presents a complex compliance challenge for even the most sophisticated software companies. Many firms establish equally complex (and manual) processes to wrangle this problem, but most don’t have the resources to do so. Why is it so difficult? The accounting standard itself isn’t the issue, because it’s fairly straightforward and well-defined: a firm must capitalize costs incurred during the application development stage, and expense costs attributable to preliminary project activities, post-implementation operations, and maintenance. In practice, however, applying these rules requires answering two questions that are harder than may seem initially: 1. Does a given software project qualify for capitalization? 2. If so, when does the capitalization period end? When does it go from active development to “maintenance mode”? To answer the first, a company has to distinguish genuine feature development from maintenance activities, operational support, and non-development work. That may not sound _too_ bad—most engineers and their managers can do this at any given tech company. But can their accounting team do it? Ah, there’s the rub. If they manage to get past the first hurdle, answering the second is even trickier. As most engineers will tell you, software projects rarely have discrete endpoints; development activities blend gradually into operations and maintenance, and identifying the transition point is inherently ambiguous. If a company does decide to take the traditional approach—rely on the engineering managers to self-report capitalization percentages or retrospectively classify their team's work—it will likely introduce systematic bias and inconsistency. After all, engineers are not accountants, and they are not incentivized to spend their time accurately capitalizing projects. But that accuracy is critical for the business as a whole: capitalization affects reported R&D spending, EBITDA, and other metrics, potentially creating pressure that undermines objectivity. To avoid these pitfalls, we decided to approach capitalization as a data-driven machine learning problem. Here’s how we did it. ## Classification at the Atomic Level The foundation of our system is a classifier that operates on individual work items—tickets, tasks, user stories—rather than projects or portfolios. Each work item is assigned to one of several internally defined classes that reflect whether the activity contributes to new product functionality, or maintains existing systems. This granular, ticket-level analysis enables aggregation at any level—project, team, or time period—while preserving full auditability back to source records. Finance teams can trace high-level determinations directly to the underlying engineering activity, rather than relying on summary narratives or retrospective estimates. ‍ ## Fine-tuning an LLM for Classification Text classification is conventionally framed as a "traditional ML" problem. Standard approaches include TF-IDF or embedding-based feature extraction followed by gradient boosting, random forests, or support vector machines, among other methods. More recent work employs encoder-only transformers like BERT or RoBERTa, fine-tuned on labeled examples. We evaluated these approaches and found them insufficient for our domain. Engineering ticket text exhibits several characteristics that challenge traditional methods: - **High Lexical Variance:** The same type of work may be described in radically different ways across organizations, teams, and individuals. - **Implicit Context:** Tickets frequently reference external systems, internal jargon, and organizational context that requires semantic understanding beyond surface-level pattern matching. - **Sparse Signal:** Many tickets contain minimal text, requiring the model to extract maximum information from limited input. Our solution was to fine-tune a large language model (LLMs) for sequence classification. While LLMs are most often thought of as chatbots, the underlying architecture can be [adapted](https://wandb.ai/gladiator/LLMs-as-classifiers/reports/LLMs-are-machine-learning-classifiers--VmlldzoxMTEwNzUyNA) for tasks that are associated with more well-known machine learning problems. As the name suggests, these models involve potentially thousands of hours of training time, so fine-tuning them for a specific use case doesn’t require a massive pre-training step. Instead, techniques like [Low-Rank Adaptation (LoRA)](https://arxiv.org/abs/2106.09685) are an efficient but powerful way of shifting the underlying weights of the model to improve performance on a specific task while preserving the model's pre-trained semantic understanding. The results we found from fine-tuning via LoRA were significant. Compared to our best-performing encoder-based baseline, the fine-tuned LLM achieved materially higher classification scores across all three classes, with particularly pronounced improvements on the minority classes (maintenance and internal operations) that are most critical for capitalization determination. The model’s richer contextual understanding allows it to correctly classify tickets that simpler approaches systematically mishandle. ‍ ## Determining Capitalizability: A Tiered Architecture With per-ticket classifications in hand, determining project-level capitalizability becomes tractable. We employ a tiered approach that balances precision with computational efficiency: ## Threshold-Based Determination For projects with sufficient ticket data, we compute the distribution of work across our three categories. Projects exhibiting an overwhelming concentration in non-capitalizable categories—maintenance or internal operations—can be classified deterministically without requiring additional analysis. This fast-path determination handles a substantial percentage of projects, particularly those representing ongoing operational work. ## LLM-Augmented Analysis Projects that do not meet the threshold criteria for automatic determination proceed to a more nuanced analysis. Here, we employ large language models again, this time with structured prompting to evaluate project descriptions against ASC 350-40 criteria. The model produces both a determination and an accompanying rationale, providing the audit trail that finance teams require. This hybrid architecture optimizes for both accuracy and cost. Deterministic classification handles clear cases efficiently, while reserving more expensive LLM inference for genuinely ambiguous situations. ‍ ## Identifying the Capitalization End Date: A Time-Series Approach As previously described, determining _when_ capitalization should terminate is arguably more challenging than determining whether a project qualifies. The accounting standard provides guidance—capitalization ends when the software is substantially complete and ready for its intended use—but mapping this definition to the continuous stream of development activity requires a principled methodology. We model this as a time-series segmentation problem. For each project, we construct a daily signal reflecting how the mix of engineering activity evolves over time. This signal is smoothed to reduce noise, and gaps are handled systematically to avoid spurious conclusions. Rather than relying on manually defined milestones, we apply statistical techniques designed to detect meaningful shifts in underlying patterns. These methods identify points where the character of the work changes in a sustained way, allowing us to partition a project’s history into distinct phases. Our decision logic then evaluates those phases: - **Persistent Non-Capitalizable Activity:** If a project’s entire timeline is dominated by work that would not qualify for capitalization, it likely never entered a capitalizable development phase during the period analyzed. - **Terminal Phase Identification:** For projects with mixed patterns, we isolate the final sustained phase in which non-capitalizable work predominates. The start of that terminal phase serves as the capitalization end date. This approach anchors end-date determinations in observed engineering behavior, rather than subjective project milestones or manager estimates. ## A New Trend: the Rise of ML in Accounting This LLM-enabled system that we’ve built for software capitalization is yet another example of a trend that we can’t help but notice here at Neo.Tax: the ever increasing value of machine learning in the world of finance and accounting. The shift from manual to ML-driven capitalization analysis has several practical implications for finance teams going forward: - **Consistency:** The same classification criteria apply uniformly across all projects, teams, and time periods. Variance attributable to individual judgment is eliminated. - **Defensibility:** Determinations are grounded in systematic analysis of actual work performed, documented in source systems of record. This represents a meaningful improvement over retrospective narratives constructed for accounting purposes. - **Timeliness:** Capitalization analysis can be performed continuously rather than quarterly or annually, enabling earlier identification of projects that may require reclassification. - **Scalability:** The analysis cost scales nearly linearly with project volume, making comprehensive coverage feasible even for organizations with large engineering footprints. Software capitalization has historically been an area where accounting precision meets engineering ambiguity, with results that satisfy neither discipline. By applying modern NLP techniques, specifically fine-tuned large language models and time-series methods, Neo.Tax has created a data-driven ML system that resolves the historical ambiguity of ASC 350-40 software capitalization. This novel approach delivers a path toward determinations that are both defensible and scalable, pointing to a future of greater ML rigor in financial reporting. --- ### Your Data, Your Environment: Customization and Security with Neo.Tax’s Dedicated Cloud URL: https://www.neo.tax/blog/your-data-your-environment-customization-and-security-with-neo-taxs-dedicated-cloud Published: 2026-01-21 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax offers a Dedicated Cloud: a single-tenant hosting environment that customers can opt for if they want a truly air-gapped, physically segregated instance of the Neo.Tax application. At Neo.Tax, we understand that [data security is table stakes](https://www.neo.tax/security) in the tax world. It’s why we’ve spent hundreds of hours achieving [ISO/IEC 27001:2022 and SOC 2 Type II certifications](https://trust.neo.tax/). It’s why we [took steps](https://www.neo.tax/blog/how-neo-tax-safeguards-your-sensitive-data) to secure our customer’s data by adding IP whitelisting, rate limiting, and runtime protection via an in-app firewall; by incorporating static code analysis and open-source dependency scanning to protect against attacks like [Shai Hulud](https://socket.dev/blog/shai-hulud-strikes-again-v2); and, of course, by encrypting everything at rest and in transit using TLS v1.3 and AES 256-bit encryption. But there’s one additional step we take, which is paramount in the AI and Tax space. For customers that want a truly white-glove level of security, Neo.Tax offers a Dedicated Cloud: a single-tenant hosting environment that customers can opt for if they want a truly air-gapped, physically segregated instance of the Neo.Tax application. In this dedicated cloud, each customer gets its own fully isolated version of Neo.Tax (e.g.,` https://acme.app.neo.tax`), with dedicated compute, storage, networking, and model inference. Because all of our infrastructure is codified and managed via Terraform, we can provision a dedicated cloud environment for any customer within 24-36 hours. We built this solution because we know that, more than ever, customers care about data privacy in this new AI-powered world. Here’s how we made it a frictionless experience. ## **A Dedicated Cloud Environment** Single-tenant hosting is when a single instance of software and infrastructure are deployed for a single client. This means _nothing_ is shared including: - Frontend CDNs - Backend services - Asynchronous workers - Databases and storage providers - VPCs, load balancers, and other networking endpoints - AI models All of this is codified in our Terraform repository, and we’ve parameterized this code so that it’s easy to instantiate a new deployment (i.e., a new dedicated cloud) for any given customer. We can also customize things appropriately. For example, if a customer who’s based on the East Coast prefers to have their Neo.Tax deployment hosted a little bit closer to home for lower latency, we can choose which data center regions to deploy in with a simple configuration change. If a customer wants to connect their Snowflake or Databricks data warehouse to Neo.Tax, we can instantiate our databases to be co-located with that warehouse to reduce data movement costs. This becomes critical for larger enterprise customers, who have massively high volumes of confidential data—such as payroll wages, project management tickets, and knowledge base articles—to share with us. And for such customers, a dedicated cloud solution offers them the ability to fully audit and observe the Neo.Tax application _and _infrastructure—down to the IAM permissions and logs per machine. The customer’s IT team can define custom protocols and alerts to fit their security needs. And, if there is a security incident with the Neo.Tax application (unlikely, but you never know!), they can rest somewhat easier knowing that there is no shared access or data exposure between tenants, because each dedicated cloud offering exists within its own security perimeter. We have already seen customers take advantage of this customization. For example, one customer wanted to limit which internal employees have access to the Neo.Tax via IP whitelisting; they did so by specifying the whitelisted IP addresses via [ZScaler](https://www.zscaler.com/), then publishing those addresses to Neo.Tax. We incorporated them into their dedicated cloud environment, updated our network ACLs that are administered via [Tailscale](https://tailscale.com/), and their internal employees never noticed a difference. ‍ ## **What This Means For You** To summarize, the Neo.Tax Dedicated Cloud offers the following added security benefits: **Isolated Infrastructure:** All Neo.Tax services—including application logic, databases, storage, networking, and AI models—run in a dedicated environment. There are no shared resources with other Neo.Tax customers. **Private Connectivity:** Optional support for private network connections (e.g., AWS Direct Connect or site-to-site VPN) and/or application IP whitelisting, eliminating public internet exposure and enhancing control over ingress/egress. **Operational Governance:** Customers may define their own backup schedules, maintenance windows, and data retention policies. Data residency requirements can also be enforced at the infrastructure level. Ultimately, our Dedicated Cloud is more than just a security feature; it is a commitment to the highest standard of data privacy and control in the AI-powered tax world. By offering a fully isolated, single-tenant hosting environment, Neo.Tax ensures that your most sensitive data—from payroll wages to proprietary projects—is never shared, giving you a truly air-gapped security perimeter. This white-glove service allows for critical customization, including data residency enforcement and co-location with data warehouses, empowering your IT team with full auditing capabilities and complete operational governance. Ultimately, choosing a Dedicated Cloud means choosing unparalleled security, peace of mind, and a frictionless experience tailored to your enterprise's specific compliance needs. --- ### How Neo.Tax's AI System Solved Tax Provision URL: https://www.neo.tax/blog/how-neo-taxs-ai-system-solved-tax-provision Published: 2025-12-18 Author: Neo.Tax Category: Education & Resources Summary: Strategic finance is what separates average companies from great ones. By solving the tax provision process, Neo.Tax has placed an extremely valuable arrow in your finance team’s quiver. We’ve talked at length about how [our AI-powered solution](https://www.neo.tax/blog/how-does-neo-taxs-ai-workhttps://www.neo.tax/blog/how-neo-taxs-ai-understands-ticketing-data) can create [a more accurate R&D tax](https://www.neo.tax/blog/how-neo-tax-solved-the-r-d-qualification-process) filing by [utilizing project management and payroll data](https://www.neo.tax/blog/how-neo-tax-solved-the-r-d-qualification-process), rather than relying on interviews. [Accuracy](https://www.neo.tax/case-studies/octane) and [the hundreds of hours saved](https://www.neo.tax/case-studies/modern-treasury) are two massive advantages of the Neo.Tax system, but what if your tax filing system could become a strategic finance advantage year-round? When it comes to calculating your tax provision, Neo.Tax’s ability to make tax real-time can make all the difference for your company. Our vision of the future is that all of tax will be calculated — rather than estimated — at provision time, whether that’s annual or quarterly … or monthly! That’s why at Neo.Tax, we’re taking a massive first step in that direction, one tax calculation at a time. Here’s how we’re making that future happen today… ### **What is a Tax Provision?** Put most simply, a tax provision is the estimated amount of income tax a company expects to pay to the IRS the next time they file. That figure is then adjusted each quarter and any prior period adjustments (which can be caused by errors, changes in estimates or accounting principles, or corrections of prior period misstatements) must be implemented and disclosed. For corporations, the estimated amount of money must be set aside as a probable future expense. To come to this figure, tax and accounting departments must take into account their net income, their current income tax expenditure, their current year permanent and temporary differences, their current tax rate, and their net-operating losses (NOL) and credits. That last aspect is massive for any corporation’s tax provision estimate — but for many, the R&D credit is not calculated until much later in the year after financial and project data is gathered and analyzed, and technical interviews are conducted with subject matter experts. ### **How Neo.Tax solved for Tax Provision?** Two things more to consider when understanding the importance of an accurate and up-to-date tax provision: 1) a public company’s effective tax rate (calculated by dividing the tax provision by pre-tax book income) is a massively important figure by which investors judge a company’s leadership; 2) over- and under-estimating a tax provision hurt a company’s ability to compete in the marketplace. [An overestimation means too much operating cash lays dormant during a calendar year and an underestimation can mean a massive, unexpected bill coming due on Tax Day.] This is where a real-time tax solution like Neo.Tax becomes such a massive gamechanger. Tax provision estimates are often complete months before the credit calculation process usually starts. That means, in most cases, corporations have to rely on last year’s figure and then make a rough estimation to land on their tax provision figure. But what if you could see, in real-time, what your upcoming R&D credit would be worth? Because Neo.Tax seamlessly links to your project-management-system and payroll data, our AI can give you a real-time glimpse at your credit, as it stands, at any moment. So, an accounting team preparing a quarterly or annual tax provision can near-instanteously see the upcoming year’s credit, prorate over the remaining months, and adjust the figure accordingly. No human-reliant system could ever be asked to do interviews with engineers and managers every quarter to get an accurate picture of their upcoming R&D credit. It’d be both costly and hugely inefficient. But our AI-powered system can grab the figure in an instant. It allows for the most accurate tax provision process imaginable, ensuring that operating budget does not lay dormant and, just as importantly, that no unexpected bills come due on filing day. Strategic finance is what separates average companies from great ones. By solving the tax provision process, Neo.Tax has placed an extremely valuable arrow in your finance team’s quiver. --- ### Why Neo.Tax Built An Audit Log URL: https://www.neo.tax/blog/why-neo-tax-built-an-audit-log Published: 2025-12-02 Author: Neo.Tax Category: Education & Resources Summary: To be a company in a compliance-heavy industry like tax means you must be obsessive about data. Not just the data, but the data’s history, too. That’s why we built an Audit Log into our data storage systems; it ensures that we can always track the full lineage of all data we ingest and produce. The most common question we get from customers is pretty unsurprising: “[So how does the AI work?](https://www.neo.tax/blog/how-does-neo-taxs-ai-work)” But the second most common question we get has nothing to do with AI, but it has everything to do with taxes: “Do you guys track all the changes that I make? Can I audit those changes?” To be a company in [a compliance-heavy industry like tax](https://www.neo.tax/blog/neo-tax-achieves-iso-iec-27001-certification) means you must be obsessive about data. Not just the data, but the data’s _history_, too. That’s why we built an Audit Log into our data storage systems; it ensures that we can always track the full lineage of all data we ingest and produce. Neo.Tax’s Audit Log tracks exactly when a change has been made to a data set, and stores the data before that date, in case it was made in error. Because project management data is touched by everyone from engineers to managers to tax teams, this is an invaluable tool for Neo.Tax customers. Having an Audit Log gives Neo.Tax powerful capabilities: we can answer questions like "what did this customer's tax calculation look like on March 15th?" or "who changed this expense allocation and when?" But these aren't just _nice-to-haves_—they're essential for regulatory compliance, customer support, improving the product, trend analysis, and debugging production issues. But how does this actually work under the hood? Let's explore how we implement these change logs using PostgreSQL triggers and changelog tables. ‍ ## Without Audit Logs, You Only Have As-Is Data The best way to understand what an Audit Log actually does is to look at a real example. So, let’s suppose we have two tables: one that tracks engineering projects, and a second that tracks how an engineer’s time is allocated. **projects table:** ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-1.png) **project_allocations table:** ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-2.png) These two tables tell us that Alice and Bob are working on the AI Tax Assistant v2 project. But what they don’t tell us is: - Were there other projects before? - Did these allocations change? - Who made these decisions and why? ## With Audit Logs, Data Tells a Story Though the following Audit Log data may be hard to parse, someone with knowledge of what the project management data is referring to can now understand the full narrative: 1. Two separate projects were created by Neo.Tax’s AI analysis pipeline on January 15th. 2. Mary merged the two projects on February 3rd to leave just one project: AI Tax Assistant v2 3. Peter reviewed the allocations on March 10th and updated Alice’s allocation ‍ **January 15th** - Project Creation projects_change_log table: (inserted two projects) ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-3.png) project_allocations_change_log table: (inserted allocations for projects) ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-4.png) **February 3rd** - Merge Projects projects_change_log table: (deleted project ML Document Classifier) ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-5.png) project_allocations_change_log table: (updated project_id for Bob) ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-6.png) **March 10th** - Manual Adjustment projects_change_log table: (unchanged) projects_change_log table: (unchanged) ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-7.png) project_allocations_change_log table: (updated project id for Bob) ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-8.png) To have that level of historical data is invaluable in an AI-powered system like Neo.Tax. But it’s just as important to have the ability to understand every change at a human level. To achieve the highest level of compliance, you need to create a system that can easily audit every change. Everything can be explained. Every question can be answered. An audit log is also incredibly valuable to developers because it provides a mechanism to debug and identify root-cause issues effectively. For Heads of Tax, the ability to see the lineage of the data is just as important. There’s an expectation that every aspect of tax can be understood and checked by every stakeholder; this allows any filer to understand if/when a data input was changed, who changed it, and why. In an era when contemporaneous data is becoming table stakes for R&D tax credits, this granular row-by-row view is table stakes as well. Now for the nitty gritty of how we built our Audit Log…. ## Technical Implementation Details When implementing Audit Logs, here are key considerations to ensure performance and correctness: 1. **Keep Column Order Identical for Generic Triggers** Maintain the exact same column order between your Main Table and Audit Log table. This allows you to write generic trigger functions that use SELECT * ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-9.png) This significantly reduces boilerplate code and makes triggers easier to maintain across hundreds of tables. 1. **Use Statement-Level Triggers for Bulk Operations** PostgreSQL has two trigger types: row-level (fires once per row) and statement-level (fires once per statement). For Audit Logs, use statement-level triggers: ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-10.png) This dramatically improves performance for bulk operations. (Imagine logging 10,000 row updates with one trigger execution vs. 10,000!) 1. **No Primary Key on ID Column** Unlike your Main Table, the Audit Log table will have multiple entries for the same id (tracking changes over time). Therefore: ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-11.png) 1. **Surrogate Primary Key for Delta-Based Replication** If you're replicating change logs to a data warehouse using delta detection (e.g., Fivetran, Airbyte), these tools require a primary key so add a surrogate primary key. ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-12.png) This allows replication tools to identify new changes efficiently. 1. **Drop All Foreign Key Constraints** Audit Log tables must not have foreign key constraints. If they did, deleting a referenced row in the main table would fail on a ON DELETE CASCADE operation in your audit trail. Audit Log tables are append-only archives—they should never block operations on live data. 2. **Convert Enum Types to Text** Enum types in PostgreSQL are essentially foreign keys to an internal lookup table. If you modify or drop an enum value, it would break your Audit Log. Therefore, you should convert enums to text: ![__wf_reserved_inherit](/_blog-images/why-neo-tax-built-an-audit-log-img-13.png) This ensures that the data in the audit log remains readable even if enum values are renamed or removed. 1. **Minimal Indexing for Performance** Audit Logs are write-heavy and read-infrequent. Every index slows down inserts: ** Only add an index for proven query patterns ** The goal: near-zero performance impact on your application's write operations. ## Why Share This? As we said in our earlier post about how [our AI understands ticketing data](https://www.neo.tax/blog/how-neo-taxs-ai-understands-ticketing-data), we believe that any AI-powered company _needs_ to show their work. Trust is everything in tax, and we understand that trust is earned, not assumed. We’re confident in what we’ve built, so it’s always fun to pull back the curtain for our customers. But if you’re confused by any of what’s in here, get in touch and let our team of data scientists and tax experts walk you through it! --- ### How Neo.Tax's AI Understands Ticketing Data URL: https://www.neo.tax/blog/how-neo-taxs-ai-understands-ticketing-data Published: 2025-11-13 Author: Neo.Tax Category: Product & Company Updates Summary: While many AI-powered companies like to sell the magic of their products, our view is the opposite: tax is too high-stakes for faith; we need to show you exactly how our AI models work. At Neo.Tax, we often talk about the value of “contemporaneous data” when filing for R&D tax credits. As evidenced by the [Kyocera case](https://www.neo.tax/blog/an-update-on-kyocera-and-what-it-means-for-you) and the [proposed changes to Form 6785](https://www.neo.tax/blog/what-is-the-new-irs-form-6765), the IRS has signaled a desire for contemporaneous data and more granular evidence in order to qualify for the credit. That’s why Neo.Tax’s ability to integrate with Jira and Linear data is such a game-changer: by coupling this data with advanced AI models, we can analyze it at scale to generate all of the outputs for an R&D credit filing, no matter the size of the business. But while many AI-powered companies like to sell _the magic_ of their products, our view is the opposite: tax is too high-stakes for faith; we need to show you exactly how our AI models work. ### **Introduction** One of the most important inputs into the R&D Tax Credit is an accounting of how much of each person’s time at the company was spent on qualified research activities, as defined by [the IRS’s 4-Part Test](https://www.neo.tax/blog/the-language-of-r-d-taxes-translated). At Neo.Tax, we use ticketing data from providers such as Jira and Linear to provide us with _contemporary_ documentation that tracks which employees worked on which tasks. This data source has several key advantages. - First, it is _contemporaneously generated_ during the normal course of work. As a result, it is much less likely to suffer from recall bias, as opposed to asking employees to recall their work history (often long) after the fact. - Second, this data source is not maintained specifically for the R&D credit, and is therefore far less likely to be strategically manipulated. Both of these features of ticketing data make it ideally placed to match the IRS’s guidance on the preferred documentation for the R&D credit. Per [§1.41-4(d)](https://www.govinfo.gov/content/pkg/CFR-2012-title26-vol1/pdf/CFR-2012-title26-vol1-sec1-41-4.pdf), “A taxpayer claiming a credit under section 41 must retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit.” Additionally, based on analysis of two court cases ([Eustace v. Commissioner, 570 F.3d 672 (5th Cir. 2009)](https://www.justice.gov/osg/brief/eustace-v-commissioner-opposition) and [Fudim v. Commissioner, T.C. Memo. 199-235](https://bradfordtaxinstitute.com/Endnotes/TC_Memo_1994-235.pdf)), the IRS requires convincing evidence to prove qualified research expenses. Because tickets are the product of engineers and researchers logging their own work, they may vary in the consistency and comprehensiveness of their record-keeping. At [Neo.Tax](http://neo.tax), we use a proprietary AI model trained on a vast library of tickets to account for this, and automatically detect and correct any record-keeping inconsistencies. ‍ ### **Approach** We follow a two-step process. First, the AI model estimates a weight for each ticket. Next, we aggregate the weights to estimate the amount of time spent on each ticket. The weight assigned to a ticket is proportional to its observed duration. For each ticket, we observe a signal of its start date and its end date. This gives us a baseline estimate **_Δ_**_ _for the number of days that were spent on the task described in the ticket. We account for potentially inconsistent record-keeping by using an AI model to estimate a weight that adjusts the raw estimate according to the data quality. That is, given our model **_f _(.)** and a set of relevant input features **_χ_**, we can obtain a set of predicted weights **_Tikpd_**_ _, which is the weight assigned to the ticket **_i_** belonging to project **_p_** for contributor **_k_** on business day **_d_**, according to the following formula: ![](/_blog-images/how-neo-taxs-ai-understands-ticketing-data-img-1.png) The model is trained on a large dataset of real-world tickets, with human-generated labels that tell us the amount of time that someone actually spent on a ticket. This model is then able to learn patterns in the types of mistakes that people may make when maintaining tickets and can determine by how much to correct the raw estimate **_Δ_**_ _based on the specific features of the ticket. In the case where the record-keeping is highly consistent, then the ticket weights are simply a measure of how much time was spent on the task. Then, we calculate effort **_Epk_**_ _on an annual basis for each contributor. Effort is measured as a percentage of the contributor’s time in the period that was spent on a particular project. ![](/_blog-images/how-neo-taxs-ai-understands-ticketing-data-img-2.png) Where: - **_βκ_** is a contributor-specific factor that accounts for the relationships between tasks - **_D_** is the number of business days in the period - In case all the weights **_T_** are zero, then **_∑_**_ _is also zero. ‍ ### **What the Algorithm Looks Like In Practice** To see how the algorithm is constructed is one thing. But, what does it look like in action? #### **Example 1: Measuring effort from the observed ticket data** Stacy creates a ticket on February 12, 2024. On February 14th she opens a pull request in GitHub, which automatically marks the ticket as “In Progress” in Linear. On February 23rd, her pull request as approved and merged, which marks the ticket as “Complete.” This is the only ticket that she was working on during this period. Stacy will be assigned 8 days of effort for this ticket, because there are 8 business days between when the ticket started (on February 14th) and when it was completed (February 23rd), inclusive of the start and end dates. #### **Example 2: How does the AI account for human error?** John creates a ticket on March 12, 2023. On March 13th, he marks it as “In Progress,” but during stand-up it is decided that this task is no longer relevant, and therefore he will not do any work on it. He closes the ticket and marks it as complete on March 15, 2023. The company’s internal policy is to mark work that was skipped as “Cancelled” in the resolution field in the Jira. However, John is a new employee and wasn’t aware, so he updates the **_status_** field to say “Won't Do.” Neo.Tax’s AI model will scan all of the ticket’s information and discern the intended meaning, even if the data has not been entered in the expected format. In this case, the ticket weight will be 0 because the **_status_** field indicates that no work was done on the ticket. ‍ ### **Why Share This Information?** You may be asking yourself: why are they sharing their algorithm? The answer is: we believe that, in tax, “it just works” is not enough for the savvy consumers we’re after. We need to pull back the curtain, because tax teams and accountants are diligent and need to be able to understand the _how_ as well. If you read this and are confused, that’s understandable. Get in touch and let our team of data scientists and tax experts walk you through it. Neo.Tax is not a magic box that spits out an R&D filing; it’s a collection of algorithms built by tax experts to solve for the specifics of this tax moment at scale. --- ### Neo.Talent: Account Manager Jo Bryant Knows Everyone in Tax URL: https://www.neo.tax/blog/neo-talent-account-manager-jo-bryant Published: 2025-10-27 Author: Neo.Tax Category: Neo.Talent Summary: Rather than pitching Neo.Tax as some magic solve, she walks the tax leaders through how the technology works, step-by-step. “We’ve just stepped onto the field and we are changing the game.” Early in her sales career, Neo.Tax account manager Jo Bryant, sold insurance with a Lloyds of London syndicate and then dictation equipment to lawyers and doctors. It was when she joined RIA in 1998 (a division of Thomson) that she learned the world of taxes. This was a decade before RIA/Thomson would acquire Reuters and become the large multi-national we know today. “This was in an age where traditional research in legal and in tax and accounting was done with a wall of books. Web research was just beginning and Thomson Reuters — which was still called RIA — was early to the digital game. So it was a very exciting time.” Most people don’t think of the beginning of digitized tax solutions as “a very exciting time,” but that’s the thing about Jo Bryant: she loves the tax space. And her enthusiasm is infectious. Not long after RIA went online, Jo explains, they acquired Fast-Tax, a platform for direct tax solutions for income tax and 1099s. “All of a sudden, overnight, I was working alongside reps selling income tax compliance solutions, and I was completely head over heels in love with it,” she says, grinning. “It was just exciting technology.” Jo spent the next 20+ years at [Thomson Reuters](https://tax.thomsonreuters.com/en/corporation-solutions/c/neotax), building lasting relationships with tax departments across the country. She knew who cared about state tax vs. federal tax. She knew the right time of the year to start conversations with each client. She knew everyone’s kids’ names and favorite restaurants and sports allegiances. “We are lucky enough to work in a business where it’s a tight community. People begin their careers in taxes, and they usually don't leave, so everybody is really connected,” she says. “It gives you an opportunity to become part of the tax community as a vendor, because if you are providing a trusted service, then they're going to lean on you, and they'll lean on you for a very long time.” So, it was a shock to some when Jo announced in May that she was leaving TR to come work at a startup called Neo.Tax. She explains that though she’d seen dozens of high-tech tax solutions come and go during her two decades at TR, Neo.Tax just instantly clicked for her. “Shortly after [the agreement between Thomson Reuters and Neo.Tax](https://www.trventures.com/news-post/thomson-reuters-ventures-establishes-a-reseller-partnership-with-neo-tax), allowing TR reps to resell the Neo.Tax solution, Neo.Tax CEO Ibrahim reached out,” Jo says. “He introduced me to the solution and the team, and I was just very impressed by the vision, by the professionalism, and by the intellectual nature of all the team members. Right away, I was like, ‘That’s the one to watch!’” A few months later, Ibrahim presented to the TR team and every sales rep started talking about how there was nothing else solving R&D like Neo.Tax on the market. In the spring, she checked back in with Ibrahim and realized that Neo.Tax had grown from a small company with an idea to “a really strong enterprise-level solution.” So, she made the leap. After so many years at TR, I had to ask what finally convinced her to leave for a startup. “Neo.Tax is an AI solution that’s actually solving a problem,” she says. This was not a chatbot or an AI image generator or something to clean up your PowerPoints. “Tax is a real business problem. Once I understood the way that Neo.Tax is able to ingest data, actually solve a complex tax process and [free-up hundreds of precious hours for tax professionals](https://www.neo.tax/case-studies/octane), I was really impressed,” she says. “This is what every executive in tax leadership is being asked about: how do you integrate AI? They’re scrambling to find solutions that [truly can solve a problem](https://www.neo.tax/blog/one-less-to-do-neo-tax-automated-capitalization-milestones). Neo.Tax is the rare AI-powered solution that actually solves a problem in the tax space.” An obsessive problem solver, Jo couldn’t wait to tell her network of tax professionals about Neo.Tax. “That’s always been the most fun part of the job,” she explains. “I like to solve puzzles, and so if you are asking a lot of good questions and hearing what your client’s pain is, and take the time to go back home and think it through, then you're going to find something to share.” In these first six months on the job, Jo has ramped up the TR network and preached the gospel of Neo.Tax to many of her old friends in the tax world. At first, she’s often met with disbelief that the LLM can really do what she says it does. “A lot of these tax departments have been sold snake oil in the past,” she explains. So, it’s heartening to sit with them, and show them that “yes, we're actually taking this data and creating the correct calculations with solid drill back to your data, that audit trail that tax lives and breathes by.” That has “been the most fun part to witness” so far. Rather than pitching Neo.Tax as some magic solve, she walks the tax leaders through [how the technology works, step-by-step](https://www.neo.tax/blog/how-does-neo-taxs-ai-work). Still, Jo knows there’s more work to do. To complete federal and state taxes at a multinational enterprise level takes hundreds of individual tasks, which means tax leaders are being pitched dozens of solutions to different parts of their process at any time. For Jo, what makes it easy to keep starting these conversations is that she knows the one she’s selling is one that doesn’t put a band-aid over a massive problem. It actually automates an entire tax category, [cutting out hundreds of hours of manual work for tax teams and engineers](https://www.neo.tax/case-studies/modern-treasury). It wasn’t easy leaving TR after all those years. But Jo knows she’s picked the right team at Neo.Tax. “The culture here is one of such deep collaboration and respect for one another. Firas and Ibrahim have done a remarkable job of bringing in top-level talent. I'm impressed by the group here every single day,” she says. “We’ve just stepped onto the field and we are changing the game.” --- ### How Neo.Tax Solved the R&D Qualification Process URL: https://www.neo.tax/blog/how-neo-tax-solved-the-r-d-qualification-process Published: 2025-09-18 Author: Neo.Tax Category: Product & Company Updates Summary: The old way of filing R&D credits is an inexact (and expensive) science. Neo.Tax’s AI-powered system uses data that exists within your system, but that no tax team (or even accounting firm) could ever sort and digest in time for Tax Day. As anyone who has filed for an R&D Credit knows, the key challenge is to determine which of your company’s projects meet the qualification criteria of the IRS's 4-Part Test. To qualify, each project must: 1. be technical in nature 2. be created for a qualified purpose 3. work to solve a problem with technical uncertainty 4. involve a process of experimentation In order to answer these questions for each and every project your engineers have worked on over the course of a tax year, tax and accounting teams often interview the engineering managers and ask them to try to remember details about the work. As you’d expect, relying on human memory leaves much to be desired for the IRS; more than that, the entire process is a huge time commitment for both the tax and the engineering teams. ### Neo.Tax’s Automated Approach is Different Neo.Tax’s approach is much more rigorous and thorough than traditional ways. Better yet, it works at scale across hundreds or thousands of projects. Here’s how our AI-powered system works: 1. Our LLM reads through every single ticket and task within your company’s project management software. 2. It evaluates each project’s eligibility step by step in the 4-part test using a tailored model, trained on IRS codes, regulations, court cases, memorandums, letters, and guidance. 3. Finally, it creates a detailed narrative of each project, explaining why or why not it qualifies for the R&D credit. 4. You can then inspect each step, and determine whether you agree or disagree with Neo.Tax’s determination. 5. By delivering the detailed reasoning for each determination, Neo.Tax creates an audit-ready study automatically. Rather than relying on interviews, often conducted months after the work was completed, Neo.Tax’s approach uses contemporaneous documentation to create a much more accurate filing. ‍ ### How Neo.Tax Solved the R&D Qualification Process Qualification is broken down step by step and our automated system evaluates each aspect of the 4-Part Test in order before proceeding. ![](/_blog-images/how-neo-tax-solved-the-r-d-qualification-process-img-1.png) Qualification is broken down step by step and evaluates each part of the 4-Part Test separately before proceeding to the next step ![](/_blog-images/how-neo-tax-solved-the-r-d-qualification-process-img-1.png) Because the model has been trained on millions of tickets across dozens of R&D industries, it understands a wide range of technical jargon, which it uses to determine whether a project is **Technical in Nature.** For example, it can digest sentences like, “FailPoint objects are designed to be defined as nonlocal objects” and “Review ad copy on AXC-15 iteration” and automatically determine that the former is Technical and the latter is Non-Technical. Next, it moves onto the **Qualified Purpose** section, and evaluates every project summary and ticket detail against the IRS code and regulations. When a project involves Internal Use Software, it automatically applies the additional high threshold for innovation test. Best of all, rather than make a 50/50 call, the automated system flags uncertain cases for follow-up and human review. ![](/_blog-images/how-neo-tax-solved-the-r-d-qualification-process-img-3.png) As it moves onto the **Technical Uncertainty **question, it begins by examining each project to identify major unknowns at the outset. Then, the LLM searches through individual tasks/tickets to identify supporting evidence. Finally,** **Neo.Tax examines project details to identify each project’s approach to a problem to determine if there was a **Process of Experimentation**. That means searching through individual tasks/tickets to identify supporting evidence of hypotheses, discarded paths, and iteration towards discovery. ‍ ### **Why AI Actually Works for R&D Tax Credits** In this moment, when AI is being put in everything, it’s easy to be wary of an _AI-Powered Fix_. But the problem that we set out to solve was a pressing one. The old way of filing R&D credits is an inexact (and expensive) science. The process takes months of work for tax teams, and relies heavily on interviews with engineers months after work was completed. It’s an arena where _guestimates_ ruled the day, but the IRS has been signaling that the burden of proof will be rising rapidly for R&D filers. Neo.Tax’s AI-powered system uses data that exists within your system, but that no tax team (or even accounting firm) could ever sort and digest in time for Tax Day. Large bodies of data that need to be sorted based on extremely specific and voluminous rules is what LLMs were built for. And that’s what we built Neo.Tax to do. It digests your project management software and weighs against the entirety of the relevant tax code and IRS guidelines. It’s more accurate than fuzzy memory and it’s scalable across thousands of projects. And this point bears repeating: there’s no blind faith involved. Every determination is easy to inspect and adjust within your management context. And the extensive project narratives, built off your contemporaneous data, mean that the study Neo.Tax delivers is audit-ready. This is the new faster, cheaper, more accurate way of filing for R&D credits. So, find out what you’re owed today. --- ### What is the New IRS Form 6765? URL: https://www.neo.tax/blog/what-is-the-new-irs-form-6765 Published: 2025-09-01 Author: Neo.Tax Category: FAQs Summary: The IRS changes to Form 6765 ask for much more granular information from the taxpayer. This new form underlines the need for businesses to utilize these new datasets. With the introduction of stricter reporting requirements, businesses and their accountants are being asked to take a proactive approach to compliance. _Update: In an _[_October 2025 news release_](https://www.irs.gov/newsroom/irs-extends-the-period-for-feedback-on-form-6765)_, the IRS announced that the new Form 6765 requirements will be delayed until Tax Year 2026. This delay will give tax filers another year to prepare for the massive change to R&D filing._ _‍_ The IRS changes to Form 6765 ask for much more granular information from the taxpayer. Now, filers must provide substantially more quantitative and qualitative information about their Qualified Expenses, including detailed information about up to 50 business components where you’ve made research expenditures. As we’ve mentioned in [other posts](https://www.neo.tax/blog/the-kyocera-section-41-case-should-be-a-wake-up-call), this appears in line with the IRS’s shift towards more contemporaneous documentation which is now much easier to access via integrated systems such as Jira and GitHub. This new form underlines the need for businesses to utilize these new datasets. With the introduction of stricter reporting requirements, businesses and their accountants are being asked to take a proactive approach to compliance. ### **What’s Changed?** Alright, let’s get specific. **Before completing Section A, taxpayers must now answer two questions: ** _1. Is your organization part of a controlled group or under common control?_ There are R&D credit limitations and aggregation rules that apply at the group level. _2. Will you be electing for the reduced 280C credit?_ The 280C credit allows companies to claim the R&D credit without reducing their deductible expenses by the credit amount. The IRS has also introduced Sections E and F which ask for more transparent reporting of expenses. ‍ **Section E:** **Other information:** Filers must now include information on… - Number of business components used in the credit calculation, which helps ensure compliance with the four-part R&D test - Officer compensation included in the wage qualified research expenses - Acquisitions and dispositions that may impact the R&D credit calculation, ensuring that changes in business structure are properly reflected - New categories of expenditures added to the current year’s QREs to identify inconsistencies year over year in credit claims - Use of the ASC 730 Directive, which is relevant for companies with assets over $10 million using certain financial reporting methods **Section F: Qualified research expenses summary:** This section mandates that filers… - Indicate whether they are required to complete Section G - Provide a breakdown of qualified research expenses by type (e.g., wages, supplies, contract research), offering the IRS greater transparency into qualified R&D activities ### **And the most significant change of all…** Most significantly, the IRS has added a Section G, which requires several categories of info about the taxpayer’s business components. For Tax Year 2024, completion of Section G is optional for all taxpayers. But by Tax Year 2025, Section G will be required for everyone except qualified small businesses claiming the payroll credit and taxpayers with qualified research expenses of \<$1.5 million and gross receipts of \<$50 million (provided they are claiming the research credit on an original return).**Taxpayers will now need to report 80% of their total qualified research expenses in descending order per business component (up to 50 business components in total). Rather than claiming your total R&D expenditure, you will now need to list each qualified expense at the time of filing. ** --- ### Neo.Tax Achieves ISO/IEC 27001 Certification! URL: https://www.neo.tax/blog/neo-tax-achieves-iso-iec-27001-certification Published: 2025-08-21 Author: Neo.Tax Category: Education & Resources Summary: “This certification isn’t just a milestone—it’s a reminder of the trust people place in us, and we take that responsibility to heart every single day.” Earlier this month, Neo.Tax achieved ISO/IEC 27001:2022 certification! The audit from Prescient Security was a stringent one, with in-person interviews and a review of all our documentation, records, and processes relating to data security. Why go through all that? Because the security of our customers’ data is an essential part of what we do. ### What Is ISO/IEC 27001 Certification? In 2005, the International Standards Organization (ISO) and the International Electrotechnical Commission (IEC) first jointly published their requirements for creating, implementing, maintaining, and continually improving an Information Security Management System up to their Information Security Standard. By establishing this highest level security standard, the ISO and IEC became a proof point for customers wanting to guarantee the safety of their information. The organizations have since jointly published two updates, in 2013 and then again in 2022. Neo.Tax chose to be audited by Prescient Security to verify that our practices meet ISO/IEC standards. After 4 months of hard work, we passed our audit and can now proudly tell our customers: we are ISO/IEC certified! ### What This Means for Neo.Tax Customers? While the certification should deliver peace of mind to our customers that their data will always be handled with utmost care and highest privacy standards, the reality is: nothing much has changed. Since we started Neo.Tax, we’ve always understood that data privacy was table stakes in the world of tax and accounting. Throughout the years, we have taken the steps to become compliant with SOC 2, Type II (which we also just renewed—for the second time!), as well as GDPR. But that’s mainly to tangibly show our customers what was always true: we are obsessed with protecting your sensitive data. So, this latest certification is another feather in our data-privacy hat, but it matters more to us, because it shows that we’ve continued to prioritize data security by constantly maintaining and improving our systems and processes. “Protecting our customers’ data has always been deeply personal to us at Neo.Tax,” [says our CTO, Firas Abuzaid.](https://www.neo.tax/blog/neo-talent-cofounder-and-cto-firas-abuzaid-sees-tax-as-a-big-data-problem) “This certification isn’t just a milestone—it’s a reminder of the trust people place in us, and we take that responsibility to heart every single day.” “We’re not stopping here; in fact, we have already begun preparing for [SOC 1](https://linfordco.com/blog/what-is-soc-1-report/) compliance, which will validate the rigor of our internal controls over financial reporting and further strengthen the trust our customers can place in our systems.” For more information on Neo.Tax’s security posture, check out our [Trust Center](https://trust.neo.tax) and our [Security](https://www.neo.tax/legal/security) page. And feel free to reach out to us with any questions at security@neo.tax. --- ### What Changed for the R&D Credit in Trump's One Big Beautiful Bill Act? URL: https://www.neo.tax/blog/what-changed-for-the-r-d-credit-in-trumps-one-big-beautiful-bill-act Published: 2025-08-01 Author: Neo.Tax Category: FAQs Summary: Many in Silicon Valley had been loudly calling for Section 174 to be changed back to its pre-TCJA form. After plenty of deadlock in Congress these last few years, it’s finally happened. On July 3rd, the House passed the budget bill President Trump has dubbed the “One Big Beautiful Bill Act”. [Tucked within the OBBBA](https://www.congress.gov/bill/119th-congress/house-bill/1/text) (Section 70302) is a massive boon for U.S. corporations. While it’s not a full reinstatement of the old way of expensing R&D, the OBBBA dramatically improves the playing field. ### **The New Reality** 1. While international R&D expenses will still need to be amortized over 15 years, domestic R&D expenses can once again be deducted from current year revenues, starting in the 2025 tax year. 2. Companies that had begun capitalizing domestic R&D expenses from 2022 to 2024 can now elect a Catch-Up Deduction, in which they deduct all the remaining unamortized R&D expenses in a single year. This deduction can be made in the 2025 tax year, and can significantly improve cash flow by lowering their tax burden. 3. Eligible small businesses may choose to retroactively apply a full expensing of their R&D to all tax years beginning with 2022, which will allow them to amend prior returns and recover amortized costs they’d already spent. ### **What This Means for You** The mechanics of how to maximize your R&D credit is complicated, but the tax experts at Neo.Tax can walk you through the process and help you take advantage of this unprecedented opportunity. [Many in Silicon Valley](https://news.ycombinator.com/item?id=44226145) had been loudly calling for Section 174 to be changed back to its pre-TCJA form. After plenty of deadlock in Congress these last few years, it’s finally happened. So it’s more important than ever to understand the best way to be strategic when it comes to R&D. --- ### One Less To-Do: Neo.Tax Automated Capitalization Milestones URL: https://www.neo.tax/blog/one-less-to-do-neo-tax-automated-capitalization-milestones Published: 2025-07-18 Author: Neo.Tax Category: Product & Company Updates Summary: One of the most tedious and frustrating parts of the software capitalization process is identifying the projects to capitalize and the capitalization milestones. Neo.Tax's Automated Capitalization tool just solved the problem! We've heard over and over from accounting teams that one of the most tedious and frustrating parts of the software capitalization process is **identifying the projects to capitalize and the capitalization milestones**. They try to implement a tracking process, but it puts a huge burden on engineering to tag and evaluate projects, which never happens consistently. At audit, the accounting team is left struggling to back up their capitalization decisions. If you have 100 engineers and need to interview even 20% of them to retroactively identify capitalization milestones, that’s 20 hours of high-value engineering time lost. Add in 40+ hours from your accounting team to translate that into audit-ready documentation, and you're looking at a full week of effort per cycle. Now multiply that across dozens of projects, and the cost and frustration grows exponentially. For innovative companies, the problem isn’t just tedious—it’s unscalable. So, our talented engineers and data scientists got to work on creating an AI tool to automate the process. This week, **we’re excited to announce the release of Automated Capitalization**! ![](/_blog-images/one-less-to-do-neo-tax-automated-capitalization-milestones-img-1.png) ## The Problem: ASC 350-40 asks companies to determine what software projects to capitalize based on development phase milestones. The traditional solution created many pain points for companies. Because the development phase is hard to pinpoint and define, controllers and accounting managers lean heavily on after-the-fact interviews with engineers. **These rough estimates to identify milestones are a pain for engineering teams and are far from exact.** The process becomes a top-down retrospective where capitalizable projects are missed and the justification for auditors becomes fuzzy at best. ## The Neo.Tax Solution So, what does this mean for your company? ![](/_blog-images/one-less-to-do-neo-tax-automated-capitalization-milestones-img-2.png) **1.** **Streamlined Capitalization Decisions, at Scale** - Neo.Tax now automatically evaluates every project against ASC 350-40 guidelines - This removes the burden off Engineering to retroactively identify milestones - For companies working on hundreds or thousands of projects, Automated Capitalization is the only way to capitalize at scale. - And the AI scales with your company: no accountant can manually track software capitalization for 200+ engineers, but Neo.Tax’s model can. **2. Consistent Capitalization Milestones** - By automating capitalization milestones based on the actual contemporary data, Neo.Tax creates a consistent output rather than a patchwork dataset created by retrospective interviews or inconsistent labeling. **3. Audit-Ready, Automatically ** - Neo.Tax’s model delivers evidence for the capitalization milestones, which are consistent across every project. - That means you have audit-ready support for the capitalization status for each project, and reasoning you can show the auditor right at your fingertips. No more inconsistent tracking. No more after-the-fact engineer interviews. No more guesswork when answering questions for an auditor. ## How We Automated Capitalization Milestones That’s why we’ve built automation into the most tedious parts of capitalization, like identifying eligible projects and key milestones. Our model is trained on the ASC 350-40 guidelines and a comprehensive dataset of tens of thousands of ASC projects hand-reviewed by expert accountants. For each project, it evaluates every underlying ticket in your existing project-management data against the guidelines and determines whether it’s Capitalizable or Not Capitalizable. If the model determines that a project is Capitalizable, the AI evaluates the tickets in the project to determine when the project has reached the development phase and when the project is likely released/in service, based on the share of maintenance/operational tickets. ![](/_blog-images/one-less-to-do-neo-tax-automated-capitalization-milestones-img-3.png) **Best of all, our model delivers a paragraph output explaining its reasoning, so your accounting team can review the recommended results, inspect the reasoning, and adjust as needed. ** So, [book a meeting](https://www.neo.tax/contact-us) and find out what Automated Capitalization can do for your company! --- ### Trump's One Big Beautiful Bill Just Changed the R&D Tax Credit—Here's What You Need To Know URL: https://www.neo.tax/blog/trumps-one-big-beautiful-bill-just-changed-the-r-d-tax-credit--heres-what-you-need-to-know Published: 2025-07-08 Author: Neo.Tax Category: Industry News Summary: Tucked within the "One Big Beautiful Bill Act" (Section 70302) is a massive boon for U.S. corporations. While it’s not a full reinstatement of the old way of expensing R&D, the OBBBA dramatically improves the playing field.  Since September 2022, we've been banging the drum [about Section 174 and how it punished U.S. companies who invested in R&D](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization). Well, with its passage last week, the Trump administration's One Big Beautiful Bill has dramatically altered the corporate tax landscape. ### **How We Got Here** As we explained then, in 2017, when President Donald Trump signed into law his landmark [Tax Cuts and Jobs Act (TCJA)](https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/), the Congressional Budget Office—tasked with nonpartisan analysis of the TCJA—found that the new tax code would vastly increase the national deficit between 2018 and 2028. The main reason was a new single corporate tax rate of 21% (down from 35%). In an effort to recoup some of those lost taxes, Congress modified the TCJA to include a massive change to the way R&D expenses are treated, which went into effect in the tax year 2022. The change, which forced innovative companies to amortize rather than deduct their R&D spend, cost U.S. businesses dearly. Basically, by dividing domestic deductions over a 5-year period, companies could no longer count qualified R&D expenses against their revenue. That meant they were hit with burdensome tax bills, far outstripping the amounts they had planned for Back in 2022, we shared this graphic, which illustrated the impact: ![](/_blog-images/trumps-one-big-beautiful-bill-just-changed-the-r-d-tax-credit--heres-what-you-need-to-know-img-1.png) ### **The New Reality** Now that you understand the landscape and how we got here, here’s the massive change that just occurred. On July 3rd, the House passed the budget bill President Trump has dubbed the “One Big Beautiful Bill Act”. [Tucked within the OBBBA](https://www.congress.gov/bill/119th-congress/house-bill/1/text) (Section 70302) is a massive boon for U.S. corporations. While it’s not a full reinstatement of the old way of expensing R&D, the OBBBA dramatically improves the playing field. For our purposes, the key details are: 1. While international R&D expenses will still need to be amortized over 15 years, domestic R&D expenses can once again be deducted from current year revenues, starting in the 2025 tax year. 2. Companies that had begun capitalizing domestic R&D expenses from 2022 to 2024 can now elect a Catch-Up Deduction, in which they deduct all the remaining unamortized R&D expenses in a single year. This deduction can be made in the 2025 tax year, and can significantly improve cash flow by lowering their tax burden. 3. Eligible small businesses may choose to retroactively apply a full expensing of their R&D to all tax years beginning with 2022, which will allow them to amend prior returns and recover amortized costs they’d already spent. ### **What This Means for You** The mechanics of how to maximize your R&D credit is complicated, but the tax experts at Neo.Tax can walk you through the process and help you take advantage of this unprecedented opportunity. [Many in Silicon Valley](https://news.ycombinator.com/item?id=44226145) had been loudly calling for Section 174 to be changed back to its pre-TCJA form. After plenty of deadlock in Congress these last few years, it’s finally happened. So it’s more important than ever to understand the best way to be strategic when it comes to R&D. --- ### How Neo.Tax Tackles the New Form 6765 Section G Reporting Requirements URL: https://www.neo.tax/blog/how-neo-tax-tackles-the-new-reporting-requirements Published: 2025-06-18 Author: Neo.Tax Category: Education & Resources Summary: The new Form 6765 is an example of the way a minor edit to tax law can have a massive effect on innovative companies. Our goal at Neo.Tax is to always do the legwork to make sure these changes are as seamless as possible for our customers. Here's how. Starting in 2025, companies will face a significant new challenge with the [updated Form 6765](https://www.neo.tax/blog/a-guide-to-the-new-irs-form-6765#:~:text=The%20IRS%20changes%20to%20Form,you've%20made%20research%20expenditures): Section G. This new section demands an unprecedented granularity in reporting, down to each specific business component. It will substantially increase the time and financial resources required to claim the credit. At Neo.Tax, we understand this looming burden. That’s why we've automated the compliance with Section G for you. ### **The Challenge: Deconstructing the New Form 6765 Section G** Navigating the detailed demands of the new Form 6765 Section G for Tax Year 2025 will be a considerable undertaking for taxpayers. Companies will now need to: - Identify every "Business Component" of their R&D activities, defining its type and purpose - Allocate all Qualified Research Expenses (QREs) _by Business Component _– including wages, contract research, supplies, and cloud computing costs. - Further break down wage expenses into supervisor and support categories within each business component. This level of granular reporting, if done manually, will be a time-consuming and error-prone process, leading to increased compliance costs and audit risks. ### **Neo.Tax: The Intelligent Solution to Form 6765 Section G ** Neo.Tax is purpose-built to alleviate the pressures of R&D Credit filing and ASC 350-40 capitalization. So, we went about creating an intelligent solution for the new Form 6765 Section G. Our AI system now: 1. Automatically identifies business components including identifying its type and purpose. 2. Allocates costs by business component — including wages, contract research, supplies, and cloud computing, directly from your underlying data. 3. Creates detailed narratives for each business component, ensuring complete, audit-ready substantiation without any additional burden on your team. This means no more manual categorization or complex spreadsheets. By simply connecting your project management and cost accounting data to Neo.Tax, the system will automatically break down wage expenses by supervisor and support staff within each component. ‍ Business components are automatically identified. ![](/_blog-images/how-neo-tax-tackles-the-new-reporting-requirements-img-1.png) Business component details including purpose and type are automatically flagged. ![](/_blog-images/how-neo-tax-tackles-the-new-reporting-requirements-img-2.png) Employee wage expense are automatically allocated to business components. ![](/_blog-images/how-neo-tax-tackles-the-new-reporting-requirements-img-3.png) ### **Benefits of Using Neo.Tax for Form 6765 Section G Compliance** By leveraging Neo.Tax for your Form 6765 Section G compliance, businesses avoid the looming burden that others will face. To manually locate the information, aggregate the data, and create reports on each business component would drastically increase the cost in time and resources for your tax team and your engineers. Automating the process with Neo.Tax both lowers compliance costs and minimizes the risk of errors, ensuring accurate and audit-ready submissions. The new Form 6765 is an example of the way a minor edit to tax law can have a massive effect on innovative companies. Our goal at Neo.Tax is to always do the legwork to make sure these changes are as seamless as possible for our customers. With Neo.Tax, you can confidently navigate the new requirements without needing to overhaul your R&D team’s processes. We automated these complex tasks, in order to free up your valuable resources, allowing your team to focus on core business activities and continued innovation, rather than getting bogged down in administrative tax compliance. At Neo.Tax, we want to make tax a strategic advantage without making it your full-time job. To see how Neo.Tax can simplify your Form 6765 Section G reporting and help your business thrive, we invite you to learn more and request a personalized demo today. --- ### How Does Neo.Tax’s AI Work? URL: https://www.neo.tax/blog/how-does-neo-taxs-ai-work Published: 2025-05-20 Author: Neo.Tax Category: Education & Resources Summary: When it comes to taxes, trust is essential. To build that trust, we believe in being transparent about how our AI works. Which is why we’re pulling back the curtain on how our AI works at Neo.Tax. So, here’s what you need to know. By now, everybody and their mother has heard of AI. But that doesn’t mean most people understand it. Apparently, it can drive cars, write blog posts, create fine art, and do most other tasks if you believe the hype. But how does it work? And can you really trust it? When it comes to taxes, trust is essential. To build that trust, we believe in being transparent about how our AI works. Which is why we’re pulling back the curtain on how our AI works at Neo.Tax. So, here’s what you need to know. ### The Three Issues of R&D Taxes There are three hard problems to solve when it comes to filing an R&D credit. 1. Which of your projects count as “qualified” for the credit under the 4-Part Test? 2. How much time did each employee spend performing qualified activities on those R&D projects? 3. Can you create R&D project narratives justifying the credit to the IRS? When we set out to automate the R&D filing, we knew our AI solution would need to successfully master those three problems. Here’s how we did it. ### Identify Qualified Projects Project management systems like Jira, Linear, or Azure DevOps contain most of the information needed to identify R&D work. But no human has the time to sort through every ticket in those systems — large teams have hundreds of thousands to millions of tickets per year. Even if they did, the data is messy, disorganized, with different engineers and teams tracking their work in different ways. That’s why [Neo.Tax’s AI has been trained on messy data](https://www.neo.tax/blog/an-ai-system-built-for-messy-and-incomplete-data), which allows it to identify where certain tickets should live based on context clues like textual and structural signals. The first task for Neo.Tax was creating a tool that could search through a company’s existing project management system data to identify qualified R&D projects. Neo.Tax’s AI begins by scanning through the tens to hundreds of thousands of tickets and grouping them into separate projects based on both content and hierarchy information with each ticket. At this point, the AI has instantaneously sorted a year’s worth of development work into a dozen (or in some cases, many dozens of) buckets, each labeled as a separate project. Now, AI can do what it does best: digest a mountain of data and sort it based on a defined ruleset, the IRS’s 4-Part Test. Is the work Technical in Nature? Does it have a Qualified Purpose? Does it solve for Technical Uncertainties? Does it include a Process of Experimentation? Neo.Tax’s AI system determines if each of the Project groupings is Qualified, Partially Qualified, or Unqualified for an R&D credit. Just like that, twelve months’ work has been grouped, tested, and labeled. ### Create R&D Narratives From there, based on the project management data, Neo.Tax’s LLM creates a rigorous narrative explaining every project. This is where [the LLM technology (think: ChatGPT) becomes such a gamechanger](https://www.neo.tax/blog/neo-taxs-large-language-model-llm-will-change-the-future-of-r-d-taxes). The IRS prefers contemporaneous data—something Neo.Tax leverages in a way no human accountant could. Better still, it creates narratives to explain exactly how and why each Project qualifies under IRS rules. This step has two advantages for filers. First, the company is audit ready without the pain of doing interviews and manual data gathering. This saves the company tens to hundreds of hours and gives them confidence knowing that they have an unprecedentedly detailed study that they can immediately present in the event of an audit. Second, by taking a holistic approach and looking at all projects, Neo.Tax can help identify qualified work that traditional methods may have missed. A company to dig into the automated filing and understand how the AI is getting to its outputs. By showing its work, a company’s Head of Tax or CFO can catch places where Qualified work is not being credited in the way it should. ### Calculates R&D Percentages for Employees Once the Projects are sorted and put through the 4-Part Test, the final step is calculating the percentage of each employee’s time that can be counted as R&D work. Because Neo.Tax’s AI has already ID’d the tickets that relate to Qualified R&D Projects, tying the employee to the project is relatively simple (at least, simple if you are AI). The payroll, vendor, and project management data required to calculate the credit in Neo.Tax is readily available at many companies. That means that rather than relying on Quarterly or Yearly estimates filled out by engineers, you can have exact percentages per employee without any additional work for your engineers. But Neo.Tax also understands that our solution only works if it’s built for the messy reality of how people actually track their work. So, even if your data is inconsistent or incomplete, it’s not a problem for our AI. Rather than relying on tagging, Neo.Tax’s AI has been trained to scour content and find patterns to sort. Nonsensical entries that would befuddle any human attempt to use keyword searches to sort these massive datasets are non-issues for our AI. We trained our AI on messy/incomplete datasets, because we know that engineers are not experts at tagging and labeling their work. The last hurdle for Neo.Tax’s AI is one you’d expect: missing data. But even that challenge is not insurmountable. We know, especially for senior employees, not every activity is tracked in your system. So, the AI identifies unrecorded time and flags it for the filer. ### Not a Black Box; A Better Way The fact is, the old way of filing R&D credits is an inexact (and expensive) science. Most filers rely on interviews with engineers months after work was completed, relying on fuzzy memory and guestimates. Now that the data exists within your system, the IRS has been signaling that the burden of proof will be rising for R&D filings. But, as you can see, sorting and digesting the existing data is a yeoman’s task for any human (or even team of humans). This is a problem that AI was created to solve. And luckily, Neo.Tax has built the AI to solve it. --- ### The Impact of AI in R&D Tax Credits URL: https://www.neo.tax/blog/the-impact-of-ai-in-r-d-tax-credits Published: 2025-05-15 Author: Ahmad Ibrahim Category: Education & Resources Summary: Can AI really be trusted with something as high-stakes as taxes? A better question is, Can we trust a process as antiquated as one that relies on the memories of engineers and managers months after the work was done? [_This story originally ran in the Spring Issue of TEI's Tax Executive Magazine_](https://www.taxexecutive.org/the-impact-of-ai-in-rd-tax-credits/) ‍ For the last several years we’ve heard that artificial intelligence (AI) is here and it’s changing the world. Yet look around—what’s changed? Sure, chatbots galore are ready to answer a question or two without your sitting on hold. And yes, dozens of tweets and LinkedIn posts are clearly penned by writers who have never eaten a hot dog or seen a sunset. But what about AI applications that fundamentally change the workflow and the productivity of your company? Those are harder to find. Which is why AI for research and development (R&D) tax credits is such an exciting prospect. It’s here. Like, right now. And it completely upends the old time-consuming expensive way that R&D credits were filed. ## AI Cuts Through the Labor of Supporting R&D Tax Credits Ask any controller or head of tax: the old way is exceedingly burdensome. The three key challenges in the arena of R&D tax credits are: 1) determining what qualifies; 2) determining how much time people spent on R&D; and 3) writing narratives that are technically accurate yet tax-specific. The core issue for controllers and heads of tax is that very few R&D teams track their work in ways that easily map onto the Internal Revenue Service’s requirements. To solve for the first two challenges, many R&D teams must fill out timesheets or surveys, follow a tedious tagging system, sit for interviews, or all of the above. This is bad for productivity and, even with a structured tagging system in place, data entered by scores of people months after the work is done guarantees inconsistencies and errors. More than that, engineering teams at innovative companies have lots of turnover—with every new hire, the R&D tagging process must be retaught and remastered. Finally, and perhaps most important, engineers are human. That means it takes many follow-ups to ensure that they’re actually following the R&D tagging process. The hours spent tagging timesheets is a waste of your engineers’ valuable time; the hours spent training, cajoling, emailing, circling back, following up, and chasing down missing data wastes your tax filer’s time (not to mention the effect on their sanity). The fundamental shift with AI is that it can solve the three challenges of the R&D credit without a highly structured process and without burdening the R&D team. AI can ingest an R&D team’s existing data and systematically identify what projects qualify for the credit according to the IRS’ four-part test. AI can determine how much of an R&D team member’s time qualifies by calculating time spent on that qualified work from the metadata in their existing data without the need for timesheets or interviews. And last, AI can write technical _and_ IRS-friendly narratives by summarizing the detailed R&D team data. ## AI Practically Made for Tax So, why does AI work so well for the R&D credit where other AI has failed? The easiest way to understand is to take a step back to what AI—or, more specifically, a large language model (LLM)—really is. AI, at its simplest, can be understood as computers exhibiting human-like intelligence. But the AI that’s gotten the market so excited is more specifically generative AI (gen AI), when a computer can “learn” and then create its own original content based on the rules given to it. An LLM is a subset of gen AI that specifically “learns” and creates language-based outputs. Think: ChatGPT. OpenAI trained its LLM on hundreds of billions of words until its own gen AI could understand the stylistic and grammatical rules of language. Now, users just enter a prompt, and ChatGPT can deliver a sentence or a paragraph or a novel. The challenge for OpenAI (and the reason ChatGPT was viewed as such a monumental step in computer intelligence) was that language is a decidedly difficult puzzle. Ask any nonnative English speaker, for example. Grammar rules seem haphazard, with many exceptions. Usage changes generationally. Even spelling changes based on the location of the English speaker. Language is a hurdle that OpenAI, incredibly, has nearly cleared. But you know what computers were built for and what they’ve always been great at? Numbers. Which is why the hurdle for AI to master tax is actually much lower. The tax code couldn’t be more perfectly suited for AI. It’s long, jargon-heavy, and nearly impossible for a layperson to parse. That’s why almost every business leader just throws up their hands and passes off the tax function to a specialist. But for an LLM, the specificity and length of the tax code is a boon, not a burden. It gives an LLM lots of rules to train on. It lets the AI have an answer for every bit of minutiae it might come across. Large language models love large bodies of text. So, an LLM trained on the tax code can be trained to become expert at the rules of a state or federal tax law. But then what? That’s where things get exciting. Because so many businesses have moved their project management and payroll online with software like Jira, Rippling, and Workday, they have at their hands a dataset that an LLM can quickly ingest. To calculate the amount of R&D spending a company does in a year, most accounting firms pore over payroll data and then do interviews with engineers and managers to identify work that qualifies as R&D for the credit. But an LLM can search through troves of data—reading more than a million tickets in a way no human filer could—while flagging business components that qualify based on the four-part test and pinning each qualified business component to a specific engineer in the payroll data. A well-trained LLM can also identify duplicate entries, calculate the exact percentage of a certain engineer’s work that qualifies, and finally create both an R&D credit filing and a comprehensive study that can be presented to the IRS in the event of an audit. But can AI really be trusted with something as high-stakes as taxes? A better question is, Can we trust a process as antiquated as one that relies on the memories of engineers and managers months after the work was done? ## AI Provides Real-Time Documentation The IRS has signaled over the last two years that it has moved sharply toward requiring contemporaneous data. In September 2023, a proposed change to Form 6765 (Credit for Increasing Research Activities) asked businesses to provide granular information about each qualified business component. In July 2024, the government asked for a summary judgment denying Kyocera AVX, the multinational ceramics and electronics manufacturer, a $1.3 million amended Section 41 R&D credit lookback prepared by PricewaterhouseCooper. In its objection, the IRS wrote: “The PwC study exclusively relied on interviews to determine employees’ time spent on projects; it did not use documentation.” At a moment when many innovative companies use software where project data is generated passively during employees’ natural workflows, the availability of contemporaneous data has never been greater. But clearly that greater availability leads to a higher bar that the IRS expects filers to clear. In this new, data-rich reality, some unlucky associate at ABC accounting firm would need to read through all the millions of pages of contemporaneous documentation, parse it, weigh it against IRS codes and regulations and court cases and memorandums and letters and guidance, and then create an R&D tax credit filing and accompanying study that stands up to the IRS’ higher standards. Which is why an LLM solution is so perfect. The data is there, but analyzing it manually is expensive and time consuming. More than that, a human parsing such a giant dataset creates nearly endless opportunities for human error. AI probably won’t write the Great American Novel. It certainly can’t replicate the intangibles of a great leader that helps startups become game-changing companies. But it can do business taxes. And it can do them really, really well. --- ### Neo.Talent: Co-Founder and CTO Firas Abuzaid Sees Tax as a Big Data Problem URL: https://www.neo.tax/blog/neo-talent-cofounder-and-cto-firas-abuzaid-sees-tax-as-a-big-data-problem Published: 2025-05-13 Author: Neo.Tax Category: Neo.Talent Summary: Neo.Tax co-founder and CTO Firas Abuzaid has watched as so many industries try to force AI into places where it just doesn’t fit: a hammer-in-search-of-a-nail situation. But it’s become clear to him that tax is a space where machine learning is the solution. "We found a problem where AI is necessary to win, and the AI has to be really high quality." Neo.Tax co-founder and CTO Firas Abuzaid has watched as so many industries try to force AI into places where it just doesn’t fit: a hammer-in-search-of-a-nail situation. But it’s become clear to him that tax is a space where machine learning is _the_ solution. “The Big 4 firms effectively substitute data with reputation. They dispatch expensive teams of accountants to interview your employees and handle all the paperwork for you,” he says. “But you can build a solution that takes in a ton of data from a business, understands the business's needs and context, and uses that to generate an output that is human-readable; that the IRS can actually digest and say, ‘Yes, this makes sense.’ And it's going to be an AI solution.” ### ‍**From Stanford to Startup World** During undergrad, Firas studied computer science at Stanford. He went on to get both a Master’s and Ph.D. in machine learning and systems in Palo Alto. He was fascinated with database research, but around the time of his graduate research, “big data and machine learning became kind of synonymous, because you couldn't actually do any sort of valuable ML without big data.” So, Firas started diving into answering foundational questions: “How do you train models efficiently? How do you run inference on data efficiently? How do you make sure that you're not sacrificing quality when you do all that stuff?” During his Ph.D., he took an internship at Microsoft Research that was focused on computer networking. Hired to optimize traffic on wide-area networks, Firas started to think that a career at Microsoft Research would be in his future. But around that time, Neo.Tax founder Ibrahim reached out to ask if he’d like to work on a startup idea to automate the R&D tax credit. Firas had been pitched many a cofounder position by that point, but was impressed with Ibrahim and his idea. “I told him, ‘Thanks, but no thanks,’ but we just kept in touch as friends.” But then, COVID hit. And, by that point, Firas was no longer as optimistic about a career as a researcher at a big industrial lab. He was frustrated, sheltered in place, stressed. “Like a lot of folks, the pandemic just kind of forced me to reassess my whole life,” he says. “I took a step back, and I was like, ‘I don't feel very happy. I don't feel very fulfilled. I could try something new.’” Right then, Ibrahim reached back out and showed Firas the progress they’d made. The startup, then named cpa.ai, had an MVP by then and a few customers signed up. Ibrahim asked if Firas would be open to putting in 10 hours per week. “I started working with him for 10 hours a week, and then 10 hours became 20, and then 20 became 40, and then, before you knew it, we were applying to YC, and we were raising a Seed Round,” Firas remembers. “Once the momentum began to build, it just took off. ## **Tax as a Big Data Problem** Coming from the world of research and academia rather than accounting gives Firas a distinctive outlook that’s allowed Neo.Tax to take off. Right away, he understood that the problem of business tax meant sorting and optimizing massive amounts of data according to complex rule sets. But it also required understanding a business’s needs and circumstances at a deep level to produce the most accurate results. “This is going to sound surprising to people, but taxes, especially for big businesses, is a big data problem,” he says. After spending a decade studying big data, he knew ML could help Neo.Tax tackle the big data of taxes. So, what does Firas mean by _Tax as a Big Data Problem_? To file correctly, you have to understand all the transactions, all the expenses, all the work that's being done, all the employees, the org structure, and more. “You have to reconcile data across so many different sources, and piece it together to build this cohesive picture of what the business is trying to do,” he explains. “If you don't do that, then you're going to have a massive blind spot, which leads to a big inaccuracy in what you're filing with the IRS.” After years of work, it’s been exciting for Firas to see Neo.Tax start to really soar. He still believes the product has a ways to go; he knows there are more problems to solve and the system could be even more efficient. “But we've found a real pain point that doesn't go away, except with AI, right? I think that's really the key,” he says. “We found a problem where AI is necessary to win, and the AI has to be really high quality. We've done the hard work of making our AI viable.” ## **The Art of CS** I ask Firas if he ever expected to be here, in a managerial role, using his Computer Science degrees to tackle business taxes. “No,” he says through a grin. Mainly, he explains, he never thought he’d be a manager, because he loves to “dive deep” to figure things out. “But I do think having the ability to dive deep makes me a better manager.” But also, there’s a part of him that is not surprised he’s ended up in an industry he never expected. See, getting here, to the role of CTO at Neo.Tax, makes sense for a student who loved to try a bit of everything in school. He was always a great pupil, but he could never settle on just one place to devote his focus. He was drawn to math and science, but also was obsessed with arts, humanities, and international relations. “I was trying to find different subjects that would whet my appetite in these respective ways,” he says. “I was kind of split between left and right brain.” It wasn’t until his first CS class at Stanford that Firas found his calling. For the first assignment, his professor assigned something basic to the 700 enrolled students and said to them, “The program we’re going to ask you to write is extremely simple, in a highly constrained environment. When you read the assignment description, you will think, ‘this seems pretty easy to do.’ But it’s going to be harder than you think. And, unless you cheat, _no two submissions_ will be identical. Everyone is going to have a unique solution.” For Firas, coding became the arena he’d been subconsciously searching for: an expertise that was both art and science, and that scratched both sides of his brain. (Many others in the field [agree](https://paulgraham.com/hp.html) [with](https://www.azquotes.com/quote/721023) [him](https://www.businessinsider.com/best-steve-jobs-quotes-from-biography-2011-10), by the way.) “I realized that you can creatively express yourself in all these different ways when you're writing code, because of how you organize your thoughts,” Firas says. “If I asked you and 99 other people to create a painting of a mountain, you would get 100 different mountains. And it's kind of the same thing with code.” For most people, there’s a Pacific Ocean-sized gap between the romance of painting and the drudgery of business taxes. But for Firas, taxes have proven to be an especially thorny big data problem to solve. So, the Ph.D. from Stanford started to paint a mountain; now, a half-decade in, his AI solution is helping Neo.Tax find its way to the top. --- ### An Update on Kyocera and What It Means For You URL: https://www.neo.tax/blog/an-update-on-kyocera-and-what-it-means-for-you Published: 2025-04-04 Author: Neo.Tax Category: Industry News Summary: Last summer, we wrote a post called “The Kyocera Section 41 Case Should be a Wake-Up Call” about the precariousness of relying exclusively on interviews to deliver the necessary proof to the IRS on an R&D filing. With the Kyocera case back in the news, it’s clearly time for an update. Last summer, we wrote a post called “[The Kyocera Section 41 Case Should be a Wake-Up Call](https://www.neo.tax/blog/the-kyocera-section-41-case-should-be-a-wake-up-call)” about the precariousness of relying exclusively on interviews to deliver the necessary proof to the IRS on an R&D filing. As we explained then: “In July, the government [moved for a summary judgment ruling](https://www.taxnotes.com/research/federal/other-documents/other-court-documents/corporation-cant-substantiate-research-credit-government-argues/7khkv) that Kyocera AVX, the multinational ceramics and electronics manufacturer, is not entitled to the $1.3 million amended Section 41 R&D Credit they recently claimed. The company had hired ​​PricewaterhouseCoopers (PwC) to make the filing, and the accounting firm did interviews with subject matter experts to compute the eligible amount of Section 41 credits they could claim for the tax years 2017-2020. PwC found $1.3 million worth of unclaimed credits, which they filed in the amended Section 41 study. But, ultimately, the IRS claims that the R&D Study and documentation provided were not sufficient to support the claim, and when the IRS requested additional documentation to support the claim neither Kyocera nor PwC could produce it. Two of the government’s objections in its case against Kyocera are especially relevant to any company that files for an R&D tax credit: 1) “The PwC study exclusively relied on interviews to determine employees' time spent on projects; it did not use documentation” and 2) “Kyocera does not have a centralized system for tracking employee time, and generally does not track employee time on projects.” The IRS has been emphasizing the necessity of contemporaneous documentation for decades, as far back as [_Eustace v. Commissioner_](https://www.swansonreed.com/eustace-v-commissioner-313-f-3d-905-7th-cir-2002-affg-t-c-memo-2001-66/) in 2002. But this recent motion for summary judgment against Kyocera could mark a potential shift towards a stricter application of their long-standing policy. **The direction seems clear—reliance on after-the-fact interviews without supporting documents is increasingly untenable.”** With the Kyocera case back in the news [see: “[Kyocera Now Owes $13 Million in Years-Running Tax Row, IRS Says](https://news.bloombergtax.com/daily-tax-report/kyocera-now-owes-13-million-in-years-running-tax-row-irs-says)” and “[Kyocera Widens Court Dispute With IRS Over Research Tax Credits](https://news.bloomberglaw.com/ip-law/kyocera-widens-court-dispute-with-irs-over-research-tax-credits)”], it’s clearly time for an update. ### **What’s New?** A district judge in South Carolina has ruled that all the issues being disputed by Kyocera and the IRS are the exclusive jurisdiction of the Tax Court, meaning the two big questions being legislated will be settled in that court. The first issue is the same one we covered in the earlier post: in 2022, **Kyocera filed a still ongoing suit arguing that they are entitled to a revised Section 41 R&D Credit worth $1.3 million based on 2018 R&D work completed and $5.73 million via a reduced transition tax liability credit under Section 965.** The government disputes that they have the documentation to prove that they are owed that amount. The second issue, which brought the case back into the headlines, is a fascinating one: on March 12, the government countersued Kyocera, asserting that they’d received a $13.36 million 2018 tax refund in error, and that they now owe the government $13.36 million plus interest. **‍** ### **Why It Matters?** The case, at its core, is about an amended return: a place where the IRS scrutiny is often higher. But the argument the government is putting forth can be read as yet another signal that the IRS is increasingly skeptical of after-the-fact interviews without supporting documentation. Many companies now have built in contemporaneous data systems — in the forms of Jira and GitHub. But it seems that it’s becoming increasingly important to assure that that data is being used in your filing. The IRS disputed the R&D tax credit claims due to inadequate substantiation of the research activities claimed under Section 41. The agency focused on the lack of contemporaneous documentation, relying instead on retrospective estimates from interviews conducted by PwC long after the fact. This method was seen as inadequate in the eyes of the court; they demanded a more rigorous substantiation to prove that the activities qualified as R&D. **As the IRS put it: they will rely less on oral testimony, which it says should be “filling the potholes, not paving the road.”** The years-long litigation has undoubtedly been extremely costly for Kyocera, and it also is not the kind of headlines you’d ever want as a company. On top of that, the actual outcome is still very much in the air. There’s a world where Kyocera loses out on both the $7 million in credits it believes it’s owed and has to pay upwards of $13 million back to the IRS. Certainly, there’s also a world where they win. But the key takeaway for companies is what this signals and what to do to avoid finding yourself in a situation like this one. ### **Real-Time Data Remains the Gold Standard for Compliance** By accessing data from systems such as Jira and GitHub at the time of tax preparation, Neo.Tax’s platform can automatically extract, classify, and substantiate qualifying R&D activities. This method aligns with the IRS's emphasis on contemporaneous records. The agency prefers these types of records because they are more reliable than verbal recollections or documentation created far after when the activity occurs — certainly, an engineer creating a timesheet of his work at the end of the month is likely more accurate than asking them to recollect their work on a project completed a year, or multiple years, in the past. **Unlike traditional R&D studies conducted by large accounting firms, which rely on retrospective interviews and questionnaires, Neo.Tax’s solution utilizes real-time data to support R&D credit claims.** This direct link to project-specific activities minimizes reliance on employee recollection and significantly enhances the accuracy and defensibility of claims during IRS audits. Neo.Tax’s technology not only protects taxpayers in the case of an IRS audit, but also provides the additional, [IRS-mandated information](https://www.irs.gov/newsroom/irs-sets-forth-required-information-for-a-valid-research-credit-claim-for-refund) required when claiming an R&D tax credit refund via an amended Federal tax return. If taxpayers are looking to find value in their research activities in their current tax year or previous tax years, Neo.Tax can help. We often speak of the way our AI solution saves time for controllers, heads of tax, and engineers by eliminating the need for time-consuming retrospective interviews. But the Kyocera case highlights another, far more stark and costly risk of relying on memory and estimations for look-back claims. The IRS is making it clear that they’re emphasizing the need for contemporaneous data. Companies who rely on the R&D credit should take note. --- ### A Guide to the New IRS Form 6765 URL: https://www.neo.tax/blog/a-guide-to-the-new-irs-form-6765 Published: 2025-03-21 Author: Neo.Tax Category: Education & Resources Summary: In February 2025, the IRS released their final version of Form 6765. It dramatically changes the way business file their R&D Credit. Many organizations' credit-filing processes will require significantly more time and effort to complete. If you're filing manually, here's what you need to know... In February 2025, the IRS released their final version of [Form 6765, Credit for Increasing Research Activities](https://www.irs.gov/pub/irs-pdf/f6765.pdf), as well their [instructions](https://www.irs.gov/pub/irs-pdf/i6765.pdf) for taxpayers claiming the Section 41 research credit on their 2024 federal income tax returns. Because of the additional information taxpayers must provide on the updated Form 6765, many organizations' credit-filing processes will require significantly more time and effort to complete. For Neo.Tax’s part, we’ve been providing customers with their study deliverables on the new Form 6765 since shortly after it was finalized. Our technology was already collecting much of the new information required to complete Form 6765, so we were more ready for the change than most. So, if you’d like to use Neo.Tax to save time, effort, and avoid the hassle, get in touch. But if you decide to file without the help of Neo.Tax's AI system, here’s what you need to know: ### **Why the Change?** The IRS changes to Form 6765 ask for much more granular information from the taxpayer. Now, filers must provide substantially more quantitative and qualitative information about their Qualified Expenses, including detailed information about up to 50 business components where you’ve made research expenditures. As we’ve mentioned in [other posts](https://www.neo.tax/blog/the-kyocera-section-41-case-should-be-a-wake-up-call), this appears in line with the IRS’s shift towards more contemporaneous documentation which is now much easier to access via integrated systems such as Jira and GitHub. This new form underlines the need for businesses to utilize these new datasets. With the introduction of stricter reporting requirements, businesses and their accountants are being asked to take a proactive approach to compliance. ### **What’s Changed?** Alright, let’s get specific. **Before completing Section A, taxpayers must now answer two questions: ** _1. Is your organization part of a controlled group or under common control?_ There are R&D credit limitations and aggregation rules that apply at the group level. _2. Will you be electing for the reduced 280C credit?_ The 280C credit allows companies to claim the R&D credit without reducing their deductible expenses by the credit amount. ‍ The IRS has also introduced Sections E and F which ask for more transparent reporting of expenses. ‍ **Section E:** **Other information:** Filers must now include information on… - Number of business components used in the credit calculation, which helps ensure compliance with the four-part R&D test - Officer compensation included in the wage qualified research expenses - Acquisitions and dispositions that may impact the R&D credit calculation, ensuring that changes in business structure are properly reflected - New categories of expenditures added to the current year’s QREs to identify inconsistencies year over year in credit claims - Use of the ASC 730 Directive, which is relevant for companies with assets over $10 million using certain financial reporting methods **Section F: Qualified research expenses summary:** This section mandates that filers… - Indicate whether they are required to complete Section G - Provide a breakdown of qualified research expenses by type (e.g., wages, supplies, contract research), offering the IRS greater transparency into qualified R&D activities ‍ ### **And the most significant change of all…** Most significantly, the IRS has added a Section G, which requires several categories of info about the taxpayer’s business components. For Tax Year 2024, completion of Section G is optional for all taxpayers. But by Tax Year 2025, Section G will be required for everyone except qualified small businesses claiming the payroll credit and taxpayers with qualified research expenses of \<$1.5 million and gross receipts of \<$50 million (provided they are claiming the research credit on an original return). **Taxpayers will now need to report 80% of their total qualified research expenses in descending order per business component (up to 50 business components in total). Rather than claiming your total R&D expenditure, you will now need to list each qualified expense at the time of filing. ** ### **For Software Companies, Another Hurdle** Finally, there’s a change to how software development can be claimed via the R&D credit. The IRS now requires businesses to classify every software component as either: internal-use software, dual-function software, or non-internal-use software, which is developed for commercial sale or third-party interaction. Certain exceptions to internal-use software treatment must also be documented, and businesses must provide detailed information on research activities, wage allocations, and related expenses. ### **What It Means For You** These changes are clearly daunting for anyone filing their R&D credit manually. Perhaps you read this far and said, “Well, I’ll send a note to my CPA but that’s their problem, not mine.” But, obviously, if you’re hiring a third-party filer and paying by the hour, expect your rate to go up significantly. And this also is a late change by the IRS, which means it’ll take time for human filers to familiarize themselves and master the new rules. **That’s why an AI-powered solution like Neo.Tax is such a perfect fit for tax. We integrated the changes into our system the moment they were finalized, and our model quickly mastered the new, more stringent IRS requirements. By accessing data from systems such as Jira and GitHub at the time of tax preparation, Neo.Tax’s platform can automatically extract, classify, and substantiate qualifying R&D activities. ** The specificity of the IRS rule change makes utilizing your existing data all the more essential come Tax Day. But asking a CPA to scour through millions of tickets is just not realistic. So, the burden inevitably will fall back on you. That is, unless you start using Neo.Tax… --- ### How Neo.Tax Safeguards Your Sensitive Data URL: https://www.neo.tax/blog/how-neo-tax-safeguards-your-sensitive-data Published: 2025-02-06 Author: Neo.Tax Category: Product & Company Updates Summary: Data is the lifeblood of innovative companies. You spend massive resources to protect it. But a security system is only as strong as its weakest link. Companies are more vigilant than ever about cybersecurity—and for good reason. Financial records, engineering roadmaps, and payroll data are among a company’s most confidential assets. However, claiming R&D tax credits and capitalizing software costs often require handing this sensitive information over to external providers. ‍ **That’s why Neo.Tax has committed to implementing advanced security protocols for company data.** **‍** The fact is: the old way has always carried security risks. And as cyber criminals become more advanced, security measures need to keep pace. CPA firms request and store your internal payroll and financial data in outdated formats, like shared folders or legacy servers. They need that data available in case of an audit, so it remains in their systems for months or even years, increasing the risk of exposure. **The advantage of working with a software-first company like Neo.Tax is that we understand the sensitivity of your data and have taken every step to protect it.** ‍ These security steps include: - SOC 2 Type 2 certification - Enterprise SSO/SAML & IP Whitelisting - AES 256 encryption of all data in transit & at rest - An assurance that data never commingles within our application ### **Data Security Is Our Priority** For our enterprise customers, we offer an extra layer of security solutions, including a dedicated cloud environment, where each company gets its own fully isolated version of Neo.Tax with dedicated compute, storage, and networking. Because all of our infrastructure is codified and managed via Terraform, we can provision a dedicated cloud environment within 24 hours. This dedicated cloud offering provides completely separate compute and data storage, ensuring strict data segregation—there’s no commingling of customer data, and IAM permissions can be tightly controlled by the customer. **Each tenant operates in its own environment, effectively creating an air-gapped system that eliminates risks associated with shared storage. **Even in the event of a security incident, there is no shared network access or data exposure between tenants—each instance exists within its own security perimeter. This also affords us the ability to add custom security measures for specific customers; for example, if a customer wants to limit which internal employees have access to the Neo.Tax application via IP whitelisting, they can do so by adding the whitelisted IPs to their dedicated cloud via a tool like [ZScaler](https://zscaler.com). And across all of our tenants, we enforce strict internal access controls with [Tailscale](https://tailscale.com) as our VPN, ensuring all internal access is IP-restricted Additionally, we provide a 30-day rollback window and point-in-time recovery powered by [Neon](https://neon.tech). This allows us to restore data to any exact moment down to the millisecond within the last 30 days, ensuring that accidental deletions, corruption, or security incidents can be instantly reversed with no data loss. Finally, our AI training is strictly anonymized, and we provide tailored options for company-specific training restrictions. Customers can also choose to opt of sharing their data for training purposes if they wish. ### **The Neo.Tax Difference** We understand that it’s uncomfortable to have a third party accessing proprietary financial details. Traditionally, working with an accounting firm meant exposing your company’s sensitive information. ‍**Neo.Tax changes that: our automated system strictly limits access to only the data necessary for summarizing projects—nothing more.** We never ask for or analyze proprietary details such as source code, architecture, or other confidential information. Instead, we rely on metadata like status changes, assignees, and project hierarchy to deliver insights while preserving your privacy. Data is the lifeblood of innovative companies. You spend massive resources to protect it. But a security system is only as strong as its weakest link. We understand that. That’s why we’ve taken every step possible to use industry-leading protections at every level of Neo.Tax. --- ### Enterprise PMOs are Wasting Your Engineers' Time URL: https://www.neo.tax/blog/enterprise-pmos-are-wasting-your-engineers-time Published: 2025-01-15 Author: Neo.Tax Category: Education & Resources Summary: At Neo.Tax, we created an automated solution that calculates your engineering team’s time — with accuracy and consistency — from existing systems. As businesses grow, understanding how engineering teams allocate their time becomes critical for efficiency and financial transparency. For decades, that meant adding processes like time sheets, labels, and tags. Now, as things have gotten more complicated, businesses have added a whole new process in the form of enterprise project management systems. The traditional rationale goes: by inputting their work, there will be more transparency for managers and simplified tax compliance for controllers and Heads of Tax. But that ignores a fundamental problem: these additional layers aren't connected to the actual core work engineers do. They depend on people following a process consistently — which never quite works. The result is incomplete and inaccurate data across systems, and frustration in engineering and finance. Engineers didn’t sign up to bookkeep. The burden of accurately tagging and tracking their work is a headache that’s out of sync with the rest of their workflow. So, we created a better solution with Neo.Tax: an automated solution that calculates your engineering team’s time — with accuracy and consistency — from existing systems. Remove the burden from engineering and remove human error from your datasets. ### **The Old Way:** Picture it: An engineer is in the flow, solving a critical bug, when a reminder pops up—it’s time to log hours. They pause their work, switch tabs, and start piecing together their tasks. Did that last hour go under 'feature development' or 'bug fixes'? Was it related to 'backend optimization' or a 'client issue'? They comb through their work history, trying to recall every detail. Wait, what’s the definition of the R&D credit again? What's capitalizable? By now, a quick task has become a frustrating ordeal of dropdown menus, tags, and guesswork. By the time they’re done and back to their code, the momentum is gone. This is the reality of time tracking with traditional tools—disruptive, tedious, and out of sync with how engineers actually work. And that’s only the beginning of the problem. In order to get usable data, every new engineering hire must be trained on a company’s tracking system. As any engineer can tell you, each company does it a little different. Then, a manager must ensure that the system is being followed, sending followups to engineers and auditing inputted data to try to find errors as they’re being introduced. Months later, when accounting goes to review and finds a whole team's work is missing from the PMO system? That means a call to the engineering team who will try to parse Jira data and try to give accounting their best guess because they certainly don’t remember it now. That’s hours of tedious work for both finance and engineering. And the net result? Inaccurate data, lost productivity, and frustration on both sides. But putting feelings aside, the biggest issue is that this extra work is unrelated to the central goal of creating innovative solutions. Why divert your engineers’ attention to a different system that has nothing to do with what they’re working on? And why make it a manager’s job to chase down virtual timesheets instead of leading the team? As anyone who’s worked at a company that uses Tempo, Harvest, Clarity PPM, Project Online, or any other PMO can tell you, despite the effort, the results are inconsistent. Everyone inputs hours differently, some people forget to put in hours at all and, inevitably, clean up is required. ‍ ### **The Neo.Tax Way:** **‍ **Why waste the time? Why not use the data you already have in Jira and GitHub to automate the process? At Neo.Tax, we asked the same question—and built an AI-powered solution to answer it. Neo.Tax automatically calculates effort from existing engineering metadata and creates a record of hours spent on specific tasks. That means, come tax time, we’ve already sorted your internal metadata into qualified and unqualified R&D spend—no spreadsheets, no guesswork, and no wasted time. What used to take hundreds of hours happens automatically. So, switch to Neo.Tax. I promise: your engineers will thank you. --- ### What is a Multi-Year Lookback R&D Credit? URL: https://www.neo.tax/blog/what-is-a-multi-year-lookback-r-d-credit Published: 2025-01-07 Author: Neo.Tax Category: FAQs Summary: You can claim the R&D tax credit for the current tax year plus amend returns for the previous three tax years. For example, in 2025, you could claim credits for 2025, 2024, 2023, and 2022. That retroactive tax filing could be worth hundreds of thousands of dollars (or more) for your company. In 2011, **“the largest 0.13 percent of all firms in the US claimed 14 percent of the credits,”** according to [research by the Mercatus Center at George Mason University](https://www.mercatus.org/students/research/data-visualizations/research-and-development-tax-credit-suffers-design-and#:~:text=The%20largest%200.13%20percent%20of,24.88%20percent%20of%20all%20firms.). The fact is: most companies still don't claim the R&D credits they're owed. Because many companies were wary of the stipulation under the Tax Cuts and Jobs Act (TCJA) that forced companies to amortize or capitalize their R&D deductions, many didn't claim R&D credits over these last few years. But because tax filings are amendable for three tax years (and in some cases, even more years), companies can perform look-back studies in order to file for R&D credits for those previous years. ‍ ### **What is a Multi-Year Lookback?** Many people don’t know this, but **you can claim the R&D tax credit for the current tax year plus amend returns for the previous three tax years**. For example, in 2025, you could claim credits for 2025, 2024, 2023, and 2022. That retroactive tax filing could be worth hundreds of thousands of dollars (or more) for your company. Neo.Tax doesn’t just stop at your prior three years, though. Due to the mechanics of the credit calculation, it may be beneficial to go back even further to substantiate qualified research activities to maximize the credit in your amended tax years. --- ### An AI System Built for Messy and Incomplete Data URL: https://www.neo.tax/blog/an-ai-system-built-for-messy-and-incomplete-data Published: 2024-12-20 Author: Neo.Tax Category: R&D Tax Credits Summary: Even with the messiest of data, Neo.Tax's AI System can deliver a better substantiated R&D credit than the time-consuming process of engineer interviews. At Neo.Tax, we talk to scores of controllers and Heads of Tax every month. One thing is clear: the old way of filing for R&D Tax Credits has become a burdensome pain. You’d think that so many businesses moving their project management and payroll online, via software like Jira, Rippling, and Workday would simplify the filing process. But, in some ways, it’s made it harder. The payroll and project management output is a rich dataset, but it’s also, well, voluminous. If that data is not inputted perfectly—_and let’s be honest, it never is_—that means it’s up to a controller or Head of Tax to sift through the mess to create the filing. Engineers need to be trained (and retrained) on the correct project tagging process, and then cajoled to sort out any inputting errors. It’s a waste of time for your filer and your engineering teams. Which is why Neo.Tax created our AI system. ‍**But what if we have messy or incomplete Jira, Linear, or Azure DevOps data? Can we still use Neo.Tax?** Here is a non-exhaustive list of concerns we’ve heard about data that we’ve heard from companies interested in trying Neo.Tax’s AI-powered solution. (Spoiler Alert: Neo.Tax’s AI system can handle each and every one.) ### **Hierarchy** - Inconsistent use of Epics/Projects. Some teams use them, others don’t - Inconsistent naming of Epics & Projects - Hierarchy doesn’t map well to Capitalization / R&D — it’s all mixed together - Project names too technical **_=> How we solve: _** Our AI system organizes your data into a consistent structure with clear high-level summaries of the work–exactly what you would do if you had infinite time. - That means it automatically takes into account hierarchy where it exists - And when it doesn’t we, our system clusters similar tickets together based on phrases, details, who worked on them, and other metadata ### **Tagging/Labeling** - Don’t tag projects as R&D - Have tag but don’t consistently use it **_=> How we solve: _** Our AI system automatically qualifies each project by analyzing the underlying ticketing data. - That means engineering teams no longer need to care about this — at all. And because our AI is expert trained on codes & regulations, court cases **AND** on the technical details, it evaluates each project step by step based on the 4-Part Test to understand if it’s technical, has a qualified purpose, and involves technical uncertainty. Best of all, it summarizes its reasoning and flags edge cases for a filer to focus on. ### **Time/Effort/Status** - Team doesn’t track time at all or does so inconsistently - Don’t always close tickets on time **_=> How we solve: _** Our AI system calculates effort automatically via passive metadata. No time tracking, story points, etc required. - Our AI does this by looking at status changes and other metadata - Then, it weights the time spent based on the content of the work - Finally, it normalizes for each person based on all work in progress at the same time ### **Multiple Systems ** - Some teams use Jira, others in Linear. **_=> How we solve:_** Connect all the systems to Neo.Tax and we sort out the complexity. That’s all you have to do. ### ‍ **What That Means For You** So, if you’re worried about the status of your project management or payroll data, that’s not a reason to avoid an AI solution. In reality, it’s actually _the_ reason to go with Neo.Tax. Because we’ve trained our AI system to do things like identify duplicate entries and identify mislabeled or untagged projects. Large language models love large bodies of text. What would take a human months can be done in an instant. Even with the messiest of data, Neo.Tax can deliver an R&D credit with better substantiation than the time-consuming process of engineer interviews, because it’s one based on contemporaneous data, which the IRS now prefers. So get in touch and we’ll show you how Neo.Tax has solved for R&D. --- ### How to Capitalize Software Costs: ASC 350-40 Explained URL: https://www.neo.tax/blog/how-to-capitalize-software-costs-asc-350-40-explained Published: 2024-11-25 Author: Neo.Tax Category: Education & Resources Summary: Here’s a cheat sheet and guide to ASC 350-40, an accounting guideline that pertains to Internal-Use Software Development Costs. No one starts a company because they’re excited about accounting and taxes. Well, no one except the Neo.Tax founders :) ‍ But for those other 99% of founders, here’s a cheat sheet and guide to ASC 350-40, an accounting guideline that pertains to Internal-Use Software Development Costs. Maybe you’ve never heard of ASC 350-40, but you should get to know the rule if you ever plan to go public. #### So, what does ASC stand for? **ASC stands for Accounting Standards Codification**. It’s a systematic framework used in the United States to organize and present accounting standards and principles. These principles, in turn, are referred to as United States Generally Accepted Accounting Principles, or GAAP. GAAP rules, standards, and procedures are created, revised, and issued by the Financial Accounting Standards Board (FASB). FASB is an independent, non-governmental entity and public companies — and companies that plan to go public — are expected to follow the principles laid out by the organization. A few other terms worth knowing: - Internal-Use Software (IUS): Software developed or purchased without the intent to market externally. - Internally Developed Software (IDSW): Software built in-house for internal use. - Software Capitalization: Accounting procedures that outline how software development and acquisition costs should be recorded by a company. [We have a handy [guide to R&D capitalization here](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization).] #### And what is ASC 350-40 specifically? ASC 350-40 provides guidance surrounding the treatment of costs incurred when developing or obtaining software for a company's internal use. When a company is developing, modifying, or implementing software for internal use, ASC 350-40 specifies the treatment of these costs, which is based on the project stage during which they are incurred. To simplify why that matters: **early in the development process, companies must immediately expense these costs, meaning that the salaries, materials, and other expenses are shown as operating cost and subtracted from gross revenue during the year they incurred. This will lower the on paper Net Revenue. As a company’s development progresses, the related expenses must be capitalized, which creates a higher Net Revenue.** #### The Three Stages of Development ASC 350-40 lays out three stages of development and has different guidelines for how internal-use software costs should be accounted for during each stage. **Stage 1 is called Preliminary Project Stage**, which they define as the stage when the internal software is either being designed, built, or shopped for by a company. During this stage, development costs are expensed, creating lower Net Revenue because Gross Revenue is subtracted by the Development Expenses. **Stage 2 is called Application Development Stage**, which they define as the stage when management has signed off on a project and engineers begin the work of coding and designing the new application or software. During this stage, development expenses begin to be capitalized, meaning only a fraction are subtracted from the gross revenue during the year they incur. **Stage 3 is called Postimplementation-Operation Stage**, which they define as the stage when the Internal Use Software is functional and in-use. At this stage, the costs are once again expensed, meaning they are subtracted from gross revenue during the year they incurred. (A note here: software upgrades and enhancements can often still be capitalized if the expenditures result in additional functionality because that work meets the definition of the Application Development Stage.) ![__wf_reserved_inherit](/_blog-images/how-to-capitalize-software-costs-asc-350-40-explained-img-1.png) #### Why does this matter? Understanding ASC 350-40 matters for a couple reasons. First, getting your books in order is a prerequisite to go public, which means many investors expect clean books by the time an innovative company is raising their Series A or Series B rounds. **Second, accounting can be an advantage for a company.** By understanding and strategically timing when certain internal software projects enter the Application Development Stage, a company can lower gross expenditures and create higher revenue. Obviously, that can be a valuable asset for a founder. #### So, what now? ASC 350-40, like much of GAAP, is intimidatingly complicated for most founders. But Neo.Tax has created an AI-powered solution. Our platform ports directly into your payroll and project management systems and solves for ASC 350-40.** ** Say goodbye to gathering data from various stakeholders and coordinating with disparate teams to complete your software capitalization process. **With Neo.Tax, the whole process is as simple as entering the dates when you want each project to enter each stage, and our AI automatically sorts and expenses or capitalizes the R&D expenditures according to GAAP. ** To learn more, set up a call with a Neo.Tax expert who can walk you through the process. --- ### The Kyocera Section 41 Case Should be a Wake-Up Call URL: https://www.neo.tax/blog/the-kyocera-section-41-case-should-be-a-wake-up-call Published: 2024-08-15 Author: Neo.Tax Category: Industry News Summary: A motion against Kyocera could mark a potential shift towards a stricter application of the IRS's long-standing R&D credit policy. It's a game-changer. In July, the [government moved for a summary judgment ruling ](https://www.taxnotes.com/research/federal/other-documents/other-court-documents/corporation-cant-substantiate-research-credit-government-argues/7khkv)that Kyocera AVX, the multinational ceramics and electronics manufacturer, is not entitled to the $1.3 million amended Section 41 R&D Credit they recently claimed. The company had hired ​​PricewaterhouseCoopers (PwC) to make the filing, and the accounting firm did interviews with subject matter experts to compute the eligible amount of Section 41 credits they could claim for the tax years 2017-2020. PwC found $1.3 million worth of unclaimed credits, which they filed in the amended Section 41 study. But, ultimately, the IRS claims that the R&D Study and documentation provided were not sufficient to support the claim, and when the IRS requested additional documentation to support the claim neither Kyocera nor PwC could produce it. Two of the government’s objections in its case against Kyocera are especially relevant to any company that files for an R&D tax credit: 1) “The PwC study exclusively relied on interviews to determine employees' time spent on projects; it did not use documentation” and 2) “Kyocera does not have a centralized system for tracking employee time, and generally does not track employee time on projects.” The IRS has been emphasizing the necessity of contemporaneous documentation for decades, as far back as [_Eustace v. Commissioner_ in 2002](https://www.swansonreed.com/eustace-v-commissioner-313-f-3d-905-7th-cir-2002-affg-t-c-memo-2001-66/). But this recent motion for summary judgment against Kyocera could mark a potential shift towards a stricter application of their long-standing policy. The direction seems clear—reliance on after-the-fact interviews without supporting documents is increasingly untenable. ### **Why AI-Enhanced R&D Tax Credit Calculation is More Relevant Than Ever: Lessons from the Kyocera Case** Kyocera's reliance on a PwC-conducted study, which was ultimately deemed insufficient by the IRS due to lack of proper documentation and over-reliance on estimates, highlights a systemic risk in the current practices of R&D credit calculation. The IRS mandates strict substantiation requirements for claiming R&D tax credits under Section 41 of the IRC. Specifically, Treasury Regulation § 1.41-4(d) emphasizes the necessity for contemporaneous documentation to support the expenditures claimed. This documentation must detail the nature of the qualifying activities and their direct connection to the claimed credits—a challenging task for businesses relying on traditional methods, particularly for those that do not have employee time tracking systems in use. In the case of Kyocera, the IRS disputed the R&D tax credit claims due to inadequate substantiation of the research activities claimed under Section 41. The agency focused on the lack of contemporaneous documentation, relying instead on retrospective estimates from interviews conducted by PwC long after the fact. This method was seen as inadequate in the eyes of the court; they demanded a more rigorous substantiation to prove that the activities qualified as R&D. ### **Neo.Tax’s AI-Enhanced Solution** This is where Neo.Tax separates itself in the R&D tax space. Unlike traditional methods that often rely on after-the-fact recollections and manual calculations, Neo.Tax leverages advanced AI to analyze real-time data from integrated systems such as Jira and GitHub. This not only ensures greater accuracy but also provides a contemporaneous, auditable trail of documentation that meets IRS requirements. Better yet, our AI not only reviews these systems to identify the research activities, but also uses the meta data to help allocate the time. And because the meta-data is recorded "at the same time" as the tickets in Jira, it is — by definition — "contemporaneous documentation." ### **Real-Time Data is the Gold Standard for Compliance** By accessing data from systems such as Jira and GitHub at the time of tax preparation, Neo.Tax’s platform can automatically extract, classify, and substantiate qualifying R&D activities. This method aligns with the IRS's emphasis on contemporaneous records. The agency prefers these types of records because they are more reliable than documentation created far after when the activity occurs — certainly, an engineer creating a timesheet of his work at the end of the month is likely more accurate than asking them to recollect their work on a project completed a year, or multiple years, in the past. Unlike traditional R&D studies conducted by large accounting firms, which rely on retrospective interviews and questionnaires, Neo.Tax’s solution utilizes real-time data to support R&D credit claims. This direct link to project-specific activities minimizes reliance on employee recollection and significantly enhances the accuracy and defensibility of claims during IRS audits. We often speak of the way our AI solution saves time for controllers, heads of tax, and engineers by eliminating the need for time-consuming retrospective interviews. But the Kyocera case highlights another, far more stark and costly risk of relying on memory and estimations for look-back claims. The IRS is making it clear that they’re emphasizing the need for contemporaneous data. Companies who rely on the R&D credit should take note. ### **This Should Be A Wake-Up Call for Innovators** As businesses increasingly adopt project-management tools that capture their developmental activities in real-time, a new approach to R&D tax credit documentation is possible. Neo.Tax’s AI-powered platform provides a reliable, efficient, and IRS-compliant method to claim R&D tax credits. By leveraging data directly from the systems so-often used by innovative companies, Neo.Tax ensures that your spending on R&D is rigorously documented in accordance with current tax laws. We can get you the money you’re owed. Just as importantly, we can deliver the data-rich study that the IRS prefers and expects. --- ### Neo.Tax Has Simplified the Multi-Year Lookback R&D Credit URL: https://www.neo.tax/blog/neo-tax-has-simplified-the-multi-year-lookback-r-d-credit Published: 2024-05-23 Author: Neo.Tax Category: R&D Tax Credits Summary: You can claim the R&D tax credit for the current year plus amend returns for the previous three tax years. Neo.Tax has made Multi-Year Lookbacks simple. Given the importance of extending runway in today’s high-interest-rate reality, it’s shocking to learn that just [3 out of every ten companies](https://www.uschamber.com/co/run/finance/research-and-development-tax-credit) that qualify for the R&D Tax Credit claim the money they’re owed. In 2011, **“the largest 0.13 percent of all firms in the US claimed 14 percent of the credits,”** according to [research by the Mercatus Center at George Mason University](https://www.mercatus.org/students/research/data-visualizations/research-and-development-tax-credit-suffers-design-and#:~:text=The%20largest%200.13%20percent%20of,24.88%20percent%20of%20all%20firms.). So, if you’re on the fence about claiming the credit, remember that the big guys are claiming it; shouldn’t you, too? But this isn’t an article designed to make you feel foolish. _FOMO Marketing_ is not our thing. We at Neo.Tax have built our AI-powered R&D Credit filing tool to make sure every innovative American business can claim the money they’re owed. So, [get in touch with our team of experts](https://www.neo.tax/contact-us) to walk you through the process! And if you didn’t file for your credit last year (or the year before that, or the year before that…), don’t worry. We can help with that, too! Many people don’t know this, but **you can claim the R&D tax credit for the current tax year plus amend returns for the previous three tax years**. For example, in 2023, you could claim credits for 2023, 2022, 2021, and 2020. That retroactive tax filing could be worth hundreds of thousands of dollars (or more) for your company. Neo.Tax doesn’t just stop at your prior three years, though. Due to the mechanics of the credit calculation, it may be beneficial to go back even further to substantiate qualified research activities to maximize the credit in your amended tax years. We can help with that – the lapsing of time is not a limiting factor to our technology! We know that’s getting very _inside baseball_; again, [book a call](https://www.neo.tax/contact-us), and we can talk you through it… But even those who do know about the value of a **Multi-Year Lookback R&D Credit** often decide against filing because of the expenditure of time and effort to correctly calibrate the amount you’re owed. The big change with Neo.Tax is that by linking with your existing project-management system, our AI-powered tool can seamlessly identify qualified expenses from past years. What used to be difficult (or impossible, if enough engineers had moved on and are unreachable for interviews) is now quick, low-lift, and much more accurate than human memory could muster. With Neo.Tax, it’s simple: if your company has a project management system that goes back _x number of years_, just plug it into Neo.Tax, and our groundbreaking tool can generate the projects and assign the effort for employees across each of those years. In solving for the pain of filing an R&D credit, we also **built a tool to make Multi-Year Lookbacks painless and worth it for every innovative company. ** The big guys have been claiming it for years. Now’s the time to claim it too. --- ### How Neo.Tax’s AI will save controllers and engineers hundreds of hours this coming tax season URL: https://www.neo.tax/blog/how-neo-taxs-ai-will-save-controllers-and-engineers-hundreds-of-hours-this-coming-tax-season Published: 2024-05-09 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax’s AI solution connects directly with a company’s internal data sources to create an accurate, exhaustive, and audit-proof IRC Section 41 filing. For enterprise companies, tax season is equal parts stakes and tedium. To file an IRC Section 41 R&D Tax Credit at an innovative company, the time expenditure can become especially daunting. One of the big challenges faced by a controller or a head of tax during tax season is creating and then interpreting an accurate snapshot of all the work completed at a company during a given year. Traditionally, that process takes hundreds of hours: interviews with engineers, surveys, combing through project management system data, and more. That time expenditure was justified because the R&D tax credit is hugely valuable for innovative companies — but certainly, engineers and executives could be creating much more value if those hours were freed up. “Recently, a controller at an enterprise company shared with me that they spent 150 hours on R&D Taxes alone,” Neo.Tax Head of Sales Ben Eachus says. And that’s before considering the worst-case scenario: an audit means hundreds more hours of labor and possibly burdensome penalties for a company. Think of the value of redistributing those hours toward forward-looking strategy or other tasks needed for the company to succeed. Neo.Tax’s AI solution connects directly with a company’s existing internal task-level data sources to create an accurate, exhaustive, and audit-proof IRC Section 41 filing. To learn more about how our groundbreaking technology works, download our White Paper: _Leveraging AI in Conducting an IRC Section 41 R&D Tax Credit Study_ --- ### Neo.Tax’s Large-Language Model (LLM) will change the future of R&D Taxes URL: https://www.neo.tax/blog/neo-taxs-large-language-model-llm-will-change-the-future-of-r-d-taxes Published: 2024-04-18 Author: Neo.Tax Category: Product & Company Updates Summary: “This LLM use-case for the R&D credit demonstrates how powerful AI can be," Neo.Tax co-founder and CTO Firas Abuzaid says. Like all game-changing ideas, Neo.Tax’s AI solve for R&D Tax Credits feels like a simple fix to a widespread problem. Every innovative enterprise company has to sort through mountains of data and conduct time-consuming interviews with engineers to file their IRC Section 41 R&D Tax Credit. Almost all of those same companies now use internal task-level data sources such as Jira and GitHub. Clearly, an AI tool should be able to outperform a human in ingesting and translating the datasets from multiple sources. Of course, for a problem as meticulous and high stakes as taxes, the construction of the AI tool is of paramount importance. At Neo.Tax, our team of machine-learning experts, AI engineers, and tax experts dove into creating an LLM specifically fluent in R&D Tax-related inputs. "People have been waiting for a breakthrough application of AI for business,” Neo.Tax co-founder and CTO Firas Abuzaid says. “This LLM use-case for the R&D credit demonstrates how powerful AI can be when thoughtfully designed to solve a rote, time-consuming, and repetitive task.” The LLM sorts through the varied datasets to determine which tasks are R&D-related and each employee’s effort-per-task to determine the percentage of their compensation that counts as a qualified R&D expense. On top of that, the LLM has been trained to determine duplicate tickets and other human-error inputting issues that muddy the data. Finally, the LLM aggregates all the qualified employee/contractor expenses for the company and calculates the total QREs, creating an accurate, exhaustive, and audit-proof IRC Section 41 filing (as well as a study that the IRS may request at a future date). The IRC Section 41 LLM is a groundbreaking example of the ways that AI can revolutionize backend business processes. To learn more about how our technology works, download our White Paper: _Leveraging AI in Conducting an IRC Section 41 R&D Tax Credit Study_ --- ### Case Study and Free Library: How Our Design Team Solved for Tailwind-Figma Compatibility URL: https://www.neo.tax/blog/designcasestudy Published: 2024-03-29 Author: Neo.Tax Category: Product & Company Updates Summary: As our engineers switched to Tailwind UI, we realized we had a problem: it wasn't compatible with Figma. So our design team set out to fix it. Here's how. ## Introduction Tailwind UI is a popular UI component library and design system built with Tailwind CSS, a utility-first CSS framework. It provides a set of pre-designed UI components and templates for front-end engineers. Tailwind UI aims to help developers create beautiful and consistent user interfaces by providing a comprehensive set of building blocks for common UI patterns, such as buttons, forms, navigation menus, modals, alerts, and more. However, design teams, who often work in design tools like Figma, do not have a direct equivalent of the Tailwind UI component library within their design environment. While Tailwind UI has made the development workflow more efficient for developers, the same level of efficiency and consistency is not readily available for designers working in Figma. At Neo.Tax, we faced a similar challenge when we decided to adopt Tailwind UI in our development workflow. While Tailwind UI provided a comprehensive set of pre-built components and templates that streamlined our development process, our design team working in Figma did not have access to the same component library. This created a disconnect between the design and development phases, leading to a significant amount of effort to align our designs with the Tailwind UI components used by our developers. Initially, our designers created UI elements and layouts from scratch in Figma, without the benefit of a pre-existing component library that matched Tailwind UI. As a result, they often designed components that did not directly correspond to the pre-built components available in Tailwind UI. This mismatch required our developers to either recreate the designs from scratch or invest substantial time modifying the existing Tailwind UI components to match the designs. Furthermore, as Tailwind UI received updates and introduced new components, we faced challenges keeping their custom-built design components in sync with the latest changes. This lack of parity between the design and development components hindered our ability to maintain a consistent and up-to-date design system across our applications. To address this issue, we embarked on building our own Figma component library that closely aligned with the components and design principles of Tailwind UI. The rest of this article details our journey to create a highly flexible component library, our learnings, and the dead-ends we faced. This piece will also serve as “lite” documentation of the Figma files we released into the community. These files for download can be found here: [**Atoms, Molecules, and Organisms**](https://www.figma.com/community/file/1354840620455560519) [**Templates**](http://‍https://www.figma.com/community/file/1354840787440642376) [**Layouts**](http://‍https://www.figma.com/community/file/1354840986804155722) ## Existing libraries At Neo.Tax, we've explored various approaches to building UI component libraries within Figma. While these methods have their merits, we've encountered significant limitations that hinder our ability to maintain a consistent and up-to-date design system. One common approach is to manually create individual frames or groups for each UI element, such as buttons, input fields, and cards, within the context of example page layouts. Designers intend for these elements to be copied and modified as needed throughout the design process. However, this manual process can be time-consuming and prone to inconsistencies, as similar elements often need to be recreated multiple times across different layouts. Further, each time something is modified, variations are introduced like a game of telephone. Eventually two buttons can look almost nothing alike. To accommodate the various states and permutations of UI elements, such as different button styles or input field states, designers often create numerous Figma Components (reusable elements) with multiple Component Variations (an alternative design for an element, that can be easily swapped out, all stored under one Figma Component). However to cover all necessary use cases and interactive states, there can be over 100 variations for one component. This approach aims to capture every possible scenario, but it also leads to a vast number of components that can be challenging to maintain and update consistently. When a design change needs to be applied across multiple variations of a component, designers must update each variation individually. This process is extremely time-consuming, especially when dealing with hundreds of component variations. Ensuring uniform updates across all variations of a component becomes a significant challenge. Furthermore, the nature of component variations in Figma can limit the flexibility of UI elements. Once a component has been created with multiple variations, it becomes increasingly difficult to make minor adjustments or introduce new variations that deviate from the existing structure. Designers may need to break the component to accommodate even minor changes, further increasing the workload and potential for inconsistencies. As our design system grew in complexity and our projects scaled, these limitations became more apparent. We recognize the need to explore alternative approaches that can better streamline our design process, maintain consistency across our UI elements, and facilitate smoother collaboration between our designers and developers. This realization has led us to investigate new solutions that can address the challenges we've faced with existing library approaches within Figma. ## Initial Approach When Neo.Tax first set out to update its Tailwind UI components, we made some assumptions about the approach it would take. Originally, the plan was to utilize a strict atomic design system with multiple levels of inheritance. For those unfamiliar, the "atomic design system" (ADS) approach refers to a methodology for designing and building user interfaces that breaks down the design process into smaller, modular components. This approach is inspired by the principles of chemistry, where atoms are the fundamental building blocks that combine to form more complex molecules and compounds. Thus, UI components are organized hierarchically, starting with the smallest, most basic elements (like buttons, labels, and icons) called "atoms." These atoms are then combined to create more complex components called "molecules" (e.g., form inputs, navigation menus). Molecules, in turn, are combined to form "organisms" (e.g., headers, footers, sidebars), which are further assembled into "templates" representing the overall structure of a page or layout. Finally, these templates are combined to create complete "pages" or final user interfaces. This modular approach allows for greater consistency, scalability, and reusability of design components across an entire system or application. In our application of ADS we would start with a series of atoms (icons, buttons, badges, etc.). Of note, we created some fairly powerful atoms: ![Initial Approach](/_blog-images/designcasestudy-img-1.png) - **Selector Object** - a swappable checkbox or radio button - **Indicator** - a small circle that indicates a state or status - **Avatar **- images for sample users and companies - **Super Icon **- a container that ensures consistency with size and color when using or adding new icons To make our system extremely flexible, many of these atoms would functionally be rolled up into a base element we would call the Universal Content Base (UCB). This UCB would contain a combination of all atoms that we often see around each other (text, icons, avatars, etc). These were styled and could be toggled on and off to create variations and would be used in most of the other atoms as a base. Consider a table cell, or drop down menu, a nav menu, etc; in each situation you could imagine designers wanting tons of combinations: - Icon + text - Text + icons - Avatar + text + icon - Avatar + text + lighter supportive text + icon - Etc ![Universal Content Base](/_blog-images/designcasestudy-img-2.png) In short, the UCB would provide a super powerful element; and critically, because all possible elements were present (_put a pin in this — it comes back later_), designers could quickly add or subtract visual elements with a toggle. ![visual elements with a toggle](/_blog-images/designcasestudy-img-3.png) This solution had numerous benefits over the existing component libraries in that it would prevent designers from having to “break” a molecule or organism just to add an icon. Further, unlike variations, where each permutation would have to be updated if there was a change, this component would be updated in only one place. After building the UCB, our atoms began being assembled into molecules (badges, buttons, dropdowns, etc.) and organisms (calendars, stats, headers, etc.). Because the goal was to maximize configurability and reuse at the lowest levels, in almost every situation where we had text, we used the UCB — and we saw a huge amount of flexibility; everything we had hoped for, until… ## Assumptions & Solutions When we started working on the tables, things stopped going so well. Under the hood, even when hidden, Figma was still rendering every atom. Consider a UCB with 10 elements: 1. Selector (e.g. checkbox) 2. Leading text 3. Leading icon 4. Indicator 5. Leading avatar 6. Main icon 7. Main text 8. Supporting text 9. Supporting icon 10. Trailing icon It turned out that even if you only had visible the main text, the figma system was storing (file size) and rendering (active memory) every other of the 9 hidden atoms. In reality, we had 10 atoms in the UCB — and hundreds of UCBs across all our molecules. During testing, we found that this would lock up the UI as it struggled with the file sizes, even crashing the Figma preview at times. Initially, we thought this was a problem to just push through, since the underlying component library wasn’t needed to be fast, just “there” for other files to import. However, our optimism didn’t last long. After one file grew over 100 megabytes and crashed Figma, freezing the entire UI, the team knew their initial approach would not work. The solution to our level of configurability was creating bloat and performance issues. At this point, debates emerged about how to support reuse while keeping components lightweight. Ultimately, the decision was to make three key changes: multiple figma files, strategic use of variations, and leveraging Figma’s suggested replacement system. ## From One To Many After moving away from an overly granular atomic design system, we decided that splitting the components across multiple files would improve performance. This way, no single file would grow too large, helping to avoid the crashing issues. Our first file contained the foundational building blocks of our design system, encompassing basic elements like text and buttons, known as atoms, as well as more complex components like input fields and navigation bars, referred to as molecules and organisms. This file served as a comprehensive catalog of reusable UI primitives. The second file housed more advanced components built by combining atoms and molecules from the first file. This included composite elements such as tables, feeds, grid lists, and forms, among others. These components were composed of reusable parts from the foundational elements in the first file, making it easier to maintain consistency and update styles across the entire system. The third file focused on flexible layout systems designed to arrange and position the higher-level components from the second file. These layouts provided a framework for structuring content and components on various page templates, ensuring a consistent visual hierarchy and spatial relationships between elements. By separating our component library into these three distinct files, we were able to better manage the complexity of our design system and mitigate performance issues caused by a single, bloated file. This approach allowed us to isolate different levels of components, making it easier to navigate and maintain each file. Additionally, by building higher-level components from reusable primitives in the first file, we could ensure consistent updates and styling across the entire system, reducing the risk of inconsistencies and decreasing the workload for our designers. ## Embracing More Variants In addition to splitting our component library across multiple files, we also adopted a more strategic approach to component variants. While we maintained a Universal Content Base (UCB) that served as a foundation for our components, we moved away from creating a single, monolithic component to one with numerous variations. Now, the UCB has six distinct levels of complexity. For example, a button component might have six variations, ranging from a "bare bones" version containing just an icon, text, and another icon, to a "Swiss army knife" variation that incorporates a multitude of features and configurations. By default, our designers now utilize the "bare bones" variation as the starting point for each component. This approach significantly reduces memory usage and file size, helping to mitigate the performance issues we faced with our previous approach. However, when specific situations demand more complex functionality, designers have the flexibility to increase the complexity of a component by selecting a more feature-rich variation. This strategic usage of variations allows us to strike a balance between maintaining a lightweight component library and accommodating advanced use cases when necessary. Additionally, we created variations for different sizes (e.g., XS, S, M, L, XL) and semantic usage (e.g., placeholder, alert, primary, secondary). So while this does mean that our UCB has a large number of variations, that _do_ need to be maintained by hand - as a central “universal” component, the flexibility we provide across the entire suite of components still allows us to scale up. This approach not only improves performance but also enhances the maintainability of our component library. Designers can make updates to a specific variation without the need to touch underlying instances of the component, reducing the workload and potential for inconsistencies. By adopting a strategic mindset when it comes to component variants, we have been able to streamline our design process while still providing the flexibility and configurability our designers require to create rich and engaging user interfaces. ## Instance Swap The third major change we implemented was taking advantage of Figma's built-in "Instance Swap" functionality. This feature allows designers to include alternative components for elements within a component, rather than hard-coding every possible permutation in the component itself. For example, within a card title component we might include placeholder slots for left-aligned elements, right-aligned elements, footers, and so on. We can then create a library of suggested component instances that commonly occupy those slots, such as icons, ratings, links, secondary text, and more. By swapping suggested component instances into a placeholder slot, designers gain significant flexibility without the need to generate hundreds of predefined variations. At the same time, since unused component variations do not load into the file, this approach does not cause performance overhead. We now strategically leverage instance swaps alongside component visibility toggles and limited variations where appropriate. For frequently accessed configurations, we rely on variations for optimal ease-of-use. For less common configurations, instance swaps provide flexibility without excessive complexity. And for dynamic configurations, component visibility triggers allow elements to show/hide based on context. This targeted combination of approaches allows us to balance design flexibility, performance, and ease-of-maintenance within our component library. By relying on instance swap functionality for long-tail use cases, we can provide customization options without the complexity of managing countless hardcoded permutations. This ultimately creates a more sustainable system, facilitating consistency while empowering designers to build interfaces tailored to their specific needs. ## Pushing the Possibilities After settling on the multi-file component approach, we began considering how to make our Tailwind UI kit more beneficial for the wider Figma ecosystem. Rather than just meeting internal needs, we pondered how to make it a valuable open-source contribution. We realized we could release the kit publically. This would allow the community to import exactly which components they need, keeping file sizes small. Beyond that, we looked at enhancements to make it more configurable for users. We debated whether to strictly adhere to the standard Tailwind UI framework, or build out additional variants that we found useful. We decided that limiting components to the default Tailwind library would miss an opportunity. By expanding the kit with personalized variations, we could accelerate design for a wider range of users. For example, we identified an opportunity to enhance the functionality of the description lists. Rather than rendering them as basic rows of content, we recognized their potential to serve as expandable accordions. By incorporating a chevron icon, we enabled users to reveal additional content beneath the main row, effectively transforming these elements into interactive components. Although this feature deviated from the initial design specifications, it aligned seamlessly with Tailwind's philosophy of promoting utility and adding value to the library's offerings. Embracing an exploratory mindset also unveiled innovative opportunities for dynamic UI adjustments through the utilization of Figma's local variables feature. While still in its beta stage, this functionality enabled the seamless integration of Tailwind UI's border and spacing values into the design process. By leveraging local variables, users gained the ability to fine-tune visual elements like border radius effortlessly, without the guesswork typically associated with determining incremental value changes. Moreover, this approach facilitated the consistent application of standardized padding and spacing values across the entire design kit, promoting cohesion and adherence to established guidelines. ![Pushing the Possibilities](/_blog-images/designcasestudy-img-4.png) In addition to spacing and border values, we also realized we could include color palettes in the local variables. We embraced the concept of semantic colors, which involve assigning specific hues to represent particular states, actions, or contextual information. By introducing local variables with semantic color names, we aimed to streamline the implementation of values such as alerts and status indicators. This approach facilitated a more intuitive and consistent application of colors, ensuring that users could quickly grasp the intended meaning or severity of a given notification or status update. For instance, shades of green could signify success or positive outcomes, while reds could indicate errors or critical alerts. Leveraging semantic color names eliminated ambiguity and guesswork, enabling designers and developers to effortlessly incorporate meaningful color cues throughout the user interface. This enhancement not only improved visual communication but also fostered accessibility and a more cohesive overall experience. ![more cohesive overall experience](/_blog-images/designcasestudy-img-5.png) In the end, Neo.Tax pushed the Tailwind UI kit beyond the official framework and customized it specifically for the Figma community. Instead of just updating an existing library, we focused on innovation and problem-solving for designers. This collaborative, user-focused approach amplified the value of the open-source release. ## Figma Limitations While building an extensive Tailwind UI kit for Figma, we maximized configuration through deep inheritance chains. This exposes all available component properties to designers for adjustment. However, we found that the configuration panel in Figma then becomes cluttered with excessive controls. Without the ability to collapse and hide subsets of configurations, the panel displays every inherited style option. For complex components with deep atomic nesting, this creates noisy interfaces that are confusing and frustrating to designers. We hope that more advanced interface features get added to Figma to streamline configurable components. Specifically, options to minimize atomic control groups would greatly improve usability. This would declutter the inspector panel and help designers focus on the most relevant customization keys. In the interim, one workaround is to add emojis to group common atoms and signify their use. Another is to annotate specific configuration properties that should not be directly edited. Adding instructions for designers provides guidance on which controls to avoid adjusting due to inheritance issues. However, this is an imperfect solution as it relies on reading notes instead of solving the root cause. As Figma expands what’s possible while building design systems, capabilities like configurable control visibility would resolve confusion from atomic inheritance overload. In the meantime, teams like Neo.Tax must creatively adapt around these platform limitations. Continued collaboration with the Figma community will hopefully drive innovations in critical areas like these. ## Lessons Learned Updating Tailwind UI presented both opportunities and challenges for us. By splitting components into multiple files and simplifying inheritance chains, we overcame technical limitations in creative ways. Our customized Figma design system pushes the possibilities of Tailwind while enhancing performance and usability. One lesson learned was that striking the right balance between configurability and complexity is essential to build usable systems. While limitations remain in widgetizing complex components, continued advancement of tools like Figma should open up new techniques. By sharing the innovations as open-source contributions, Neo.Tax aims to advance UI development best practices for the wider design community. This case study provides both technical insights and guiding principles for teams undertaking similar design system initiatives. ## About These Files This file is an updated version of the Tailwind UI for Figma, which leverages Figma's powerful new features. It allows designers to quickly and easily create user interfaces. The improvements made to this version include: 1. Switching from local styles to local variables, which provides more flexibility and consistency across components. 2. Addition of useful components that are not available on the official Tailwind UI website, expanding the design options. 3. Extensive use of inheritance, which promotes code reusability and maintainability. With these enhancements, designers can streamline their workflow and create more consistent and robust interfaces using the updated Tailwind UI for Figma. ## Where can I find them all? ‍ ![Where can I find them all](/_blog-images/designcasestudy-img-6.png) #### **File 1: Atoms, Molecules & Organisms** [https://www.figma.com/community/file/1354840620455560519]() ![File 1: Atoms, Molecules & Organisms](/_blog-images/designcasestudy-img-7.png) #### File 2: Templates (Tables, Lists, and More) [https://www.figma.com/community/file/1354840787440642376]() ![File 2: Templates (Tables, Lists, and More)](/_blog-images/designcasestudy-img-8.png) #### File 3: Layouts (Content, Dialogs, Slide-overs) [https://www.figma.com/community/file/1354840986804155722]() ‍ ## File 1: Atoms, Molecules & Organisms This system is based on the atomic design system with multiple levels of inheritance. For those unfamiliar, the "atomic design system" (ADS) approach refers to a methodology for designing and building user interfaces that breaks down the design process into smaller, modular components. This approach is inspired by the principles of chemistry, where atoms are the fundamental building blocks that combine to form more complex molecules and compounds. This file includes the smallest, most basic elements (like buttons, labels, and icons) called "atoms," which are then combined to create more complex components called "molecules" (e.g., form inputs, navigation menus). Molecules, in turn, are combined to form "organisms" (e.g., headers, footers, sidebars). As these are the most basic parts of a design they have been collected into this file to ensure that if you choose not to utilize the other two files, you can still use the Tailwind UI at its core. ![File 3: Layouts (Content, Dialogs, Slide-overs)](/_blog-images/designcasestudy-img-9.png) ‍ ## File 2: Templates (Tables, Lists, and More) Following atomic design, the atoms, molecules and organisms from the previous file are further assembled into "templates" representing the overall structure of a page. This includes tables, lists, feeds, and other complex components. ‍ ![File 2: Templates (Tables, Lists, and More)](/_blog-images/designcasestudy-img-10.png) ‍ ## File 3: Layouts (Content, Dialogs, Slide-overs) Finally, the templates are further assembled into more complex "layouts" representing the larger containers within a page. ![](/_blog-images/designcasestudy-img-11.png) ‍ ## Connecting Libraries ## Why is there more than one library file? Because we wanted a more fully featured library the components had to be split into multiple files to improve the overall performance. We used the atomic principles of design to split the components into the different files, enabling you to build from the most simple elements all the way up to full page layouts without a decrease in usability. For more information on libraries in Figma, see their help article: [https://help.figma.com/hc/en-us/articles/360041051154-Guide-to-libraries-in-Figma](https://help.figma.com/hc/en-us/articles/360041051154-Guide-to-libraries-in-Figma) ## How do I connect all the libraries in this set? 1. From the community tab or using the links on the left, download all libraries 2. Open file 1 3. Under assets > library, publish the file 1 4. Once that process has completed, open file 2 5. Under assets > library, find file 1 and add it to file 2 ‍ ![](/_blog-images/designcasestudy-img-12.png) ‍ 1. Once file 1 has been successfully added, publish file 2 2. Once file 2 has completed publishing, open file 3 3. Under assets/libraries, add both files 1 and 2 4. Repeat these steps to include file 1 & 2 in your 3rd library ‍ ![](/_blog-images/designcasestudy-img-13.png) ‍ 1. Once both files have been successfully added, publish file 3 2. Your files are ready to use! ## How do I get updates? Changes made to the original file are not reflected in duplicated files. You must duplicate the updated file to view any changes. At this time, Figma does not offer a way to simply incorporate the changes from the new file into your current file. ## I can’t add my libraries. Unfortunately, connecting external libraries is not available for Figma users on the free tier. ## The styles in file 2 and 3 aren’t linked after I connect the libraries! Unfortunately, Figma does not support the ability to keep the styles in subsequent files downloaded from the community linked, despite adding them as supporting libraries in the assets tab. The only method we have found to re-link these is to re-select them on each component. Styles that become unlinked include: - colors - fonts - Effects If you do not change any of these styles in file 1, this is not an issue. All components function correctly despite this. However, if you update your brand colors in file 1, for example, these changes will need to be re-linked in files 2 and 3 for the inheritance to take effect. An alternative workaround is to use an external library for your branding, link it to each library, and integrate those branded styles into the components rather than relying on file 1’s styles. ## Variables & 
Style Library ## Does this file still use the Local Style Library? We are moving towards using local variables as they are more flexible for the purposes of this kit. Not only can we offer all of the main Tailwind UI colors, but with the flip of a toggle you can view the designs in either a light kit or a dark kit. This system also allows the flexibility of semantic colors for styles such as alert, success, warning, and more. Of course, where it makes sense (such as avatars or colors with opacity or linear styles) we will certainly add local styles as needed. To learn more about variables in Figma, see their help article: [https://help.figma.com/hc/en-us/articles/15339657135383-Guide-to-variables-in-Figma](https://help.figma.com/hc/en-us/articles/15339657135383-Guide-to-variables-in-Figma) ### Variables ![](/_blog-images/designcasestudy-img-14.png) ‍ ## How do I change brand colors? You have several options for including your brand colors and elements. The first option is the include an external library with those colors. To do this, follow the instructions for adding a new library. ‍ The second option is to change the colors within the local variables in file 1. To do this, follow these instructions: 1. Open Local Variables 2. Select Primary or Secondary 3. Change the Light & Dark columns ‍ ![](/_blog-images/designcasestudy-img-15.png) ‍ A third option is to include your brand colors as a separate collection within the local variables. To do this, follow these instructions: 1. Open Local Variables 2. Select the 3 dots to the right of the current collection name 3. Select “Create Collection” in the dropdown 4. Name your new collection 5. Then click “Create Variables” to add your colors ‍ ![](/_blog-images/designcasestudy-img-16.png) ‍ ## How do I change the border radius? Border-radius is a property that allows you to round the corners of an element's border. It specifies the radius of the border corner curves. There are two ways to change the border radius within this library. Globally, or on individual components. To change the values on individual components: 1. Click on your component and find the radius you’d like to adjust 2. Click on the value 3. A dropdown will appear with the predetermined numbers 4. Choose the value you prefer ‍ ![](/_blog-images/designcasestudy-img-17.png) ‍ To change the values globally: 1. Open Local Variables 2. Select the border-radius category 3. Adjust the values as needed ‍ ![](/_blog-images/designcasestudy-img-18.png) ‍ ## How do I change the border width? Border-width is a property used to specify the width of the border around an element. There are two ways to change the border radius within this library. Globally, or on individual components. To change the values on individual components: 1. Click on your component and find the border width you’d like to adjust 2. Click on the value 3. A dropdown will appear with the predetermined numbers 4. Choose the value you prefer ‍ ![](/_blog-images/designcasestudy-img-19.png) ‍ To change the values globally: 1. Open Local Variables 2. Select the border-radius category 3. Adjust the values as needed ‍ ![](/_blog-images/designcasestudy-img-20.png) ## How do I change margin or padding spacing? Padding refers to the space between the content of an element and its border. It is used to increase the space between the content and the border of an element, thereby affecting its overall size and appearance. Margin refers to the space outside the border of an element. It controls the distance between the element and adjacent elements in the layout. There are two ways to change margin or padding spacing within this library. Globally, or on individual components. To change the values on individual components: 1. Click on your component and find the margin you’d like to adjust 2. Click on the value 3. A dropdown will appear with the predetermined numbers 4. Choose the value you prefer ‍ ![](/_blog-images/designcasestudy-img-21.png) ‍ To change the values globally: 1. Open Local Variables 2. Select the category you’d like to change 3. Adjust the values as needed ‍ ![](/_blog-images/designcasestudy-img-22.png) ‍ ## How do I change the space between elements? Space-between is a value for the justify-content property, which is used in flexbox layouts to align and distribute flex items along the main axis. There are two ways to change the space between elements within this library. Globally, or on individual components. To change the values on individual components: 1. Select your component 2. In the auto layout panel, click on the value that you’d like to change (in this example, the space-between) 3. A dropdown appears with pre-set values from the Local Variables settings 4. Adjust the value as needed ‍ ![](/_blog-images/designcasestudy-img-23.png) ‍ To change the values globally: 1. Open Local Variables 2. Select the category you’d like to change 3. Adjust the values as needed ‍ ![](/_blog-images/designcasestudy-img-24.png) ‍ ## How do I swap the dark/light kit variables? In Figma, the light and dark kits are each called modes. You can switch modes on: - Layers - Frames - Components and component sets - Sections - Groups - Pages 1. Select the layer or component that you would like to change 2. In the auto layout panel, click on the layer toggle 3. A dropdown appears with pre-set values from the Local Variables settings 4. Select the color values you would like to use ‍ ![](/_blog-images/designcasestudy-img-25.png) If you are changing the color options on a full page, you can find the toggle on the page selector in the right panel. ‍ ![](/_blog-images/designcasestudy-img-26.png) ‍ ## I can’t use/change the dark variables. Unfortunately, the second column of variables are not available for Figma users on the free tier. ‍ ![](/_blog-images/designcasestudy-img-27.png) ‍ ## Icons & Avatars ## What’s the difference between an icon and an avatar? "Avatar" and "icon" are both visual elements used in various contexts, often in digital interfaces, but they serve different purposes and have distinct characteristics. **Avatar:** - An avatar is typically a representation of a user, often in the form of a profile picture or image. It can be a photograph, an illustration, or a graphic that symbolizes a person, often associated with an account or identity in online platforms, social media, forums, or messaging applications. - Avatars are usually used to personalize user profiles, provide visual identification, and add a human touch to digital interactions. - Avatars can convey emotions, personality, or identity, making them a central element in social networking and online communities. - They are often larger in size compared to icons and may contain more detailed imagery. **Icon:** - An icon is a small, simplified graphical representation of an object, action, or concept. Icons are commonly used in user interfaces to convey information quickly and intuitively. - Icons are designed to be universally recognizable and easily understood, often using simplified shapes, symbols, or glyphs. - They are used for various purposes such as indicating navigation elements (like menu items), representing actions (like save or delete), conveying status (like warning or success), or highlighting features. - Icons are typically smaller in size compared to avatars and are often used in buttons, toolbars, menus, and other UI elements to aid users in understanding functionality and navigation. ## Why aren’t more icons and avatars provided? We understand that designers often have their preferred icons and avatars. To facilitate your design process, we've included a diverse selection to kickstart your project. We recommend that you create your own library with these elements and make them a dependency in this library to use your assets in these designs. ## How do I connect my libraries for my icons, avatars, and other assets? 1. Open Assets 2. Select the Library Icon 3. Find your published library and select “Add to file” For more information on libraries in Figma, see their help article: [https://help.figma.com/hc/en-us/articles/360041051154-Guide-to-libraries-in-Figma](https://help.figma.com/hc/en-us/articles/360041051154-Guide-to-libraries-in-Figma) ‍ ![](/_blog-images/designcasestudy-img-28.png) ## How do I change icons? 1. Select the element with the icon that you would like to change 2. In the right panel, find the instance of the icon 3. Click the “variation” dropdown to see the suggested replacements ‍ ![](/_blog-images/designcasestudy-img-29.png) ‍ 1. If you would prefer to use a different icon than the ones listed, click the “Preferred” dropdown to open a menu to find more local components or additional enabled libraries ‍ ![](/_blog-images/designcasestudy-img-30.png) ‍ ## How do I change icon size? 1. Select the icon that you would like to change 2. In the right panel, find the instance of the icon 3. Click the “size” dropdown to see the suggested replacements ‍ ![](/_blog-images/designcasestudy-img-31.png) ‍ ## How do I change icon color? 1. Select the icon that you would like to change 2. In the right panel, find the instance of the icon 3. Click the “case” dropdown to see the suggested replacements ‍ ![](/_blog-images/designcasestudy-img-32.png) ‍ ## How do I change avatars? Avatars do not (yet) work within the local variables. Instead, these live within the local styles, which can be found at the bottom of the design panel. ‍ ![](/_blog-images/designcasestudy-img-33.png) ‍ ## Colors ## Primary Color The primary color is used for branding elements and atoms including: - logos - primary buttons - links - things you can interact with ‍ ![](/_blog-images/designcasestudy-img-34.png) ‍ ## Secondary Color The secondary color is used for supporting elements, including: - badges - avatars - items with tool tips only - things you should visually see called out, but w/o clickable interaction ‍ ![](/_blog-images/designcasestudy-img-35.png) ‍ ## Semantic Colors semantic colors are a set of color names that carry specific meanings or convey semantic information, making them useful for styling elements in a way that enhances accessibility, clarity, and user understanding. These semantic colors are often chosen based on their association with common concepts or categories, allowing designers and developers to communicate information more effectively through visual cues. Foreground (FG) colors are primarily intended for font color or icon states, including hover, disabled, links, alerts, success, info, and more. Background (BG) colors are complimentary colors to the FG colors, intended as lighter versions that are used in backgrounds for badges, alerts, and other components. Additional semantic colors include background and foreground colors for: - links - borders - even and odd rows (for zebra-striping tables and rows in other elements) - canvas and surface - subtle and muted for differentiating sections ‍ ![](/_blog-images/designcasestudy-img-36.png) ‍ ## Components ## Philosophy In our approach to building user interfaces, we employ a triad of techniques aimed at expediting the development process while ensuring maximum flexibility and customization. Firstly, we utilize variations to swiftly construct full components, allowing for rapid assembly of complex UI structures. Secondly, through replacements, we facilitate the seamless swapping of elements within these components, enabling quick adjustments to layout and functionality without the need for extensive reworking. Lastly, by leveraging properties, we empower efficient updates to individual atoms within the components, affording granular control over styling and behavior. These strategies collectively serve to streamline the UI development workflow, offering designers and developers alike the agility to adapt and customize interfaces with ease while maintaining a high degree of flexibility. ## Variations Components have multiple variations to allow for users of the library to quickly build a variety of screens to fit their needs. Most of the Tailwind UI examples are recreated here, as well as a few variations we thought were useful in building our own designs. For example, when designing modals, we included examples that can include forms, feeds or tables. We also added a form field within the deactivate example in order to accommodate for companies who require the user to type in a phrase before they can perform an action. ‍ ![](/_blog-images/designcasestudy-img-37.png) ‍ ## Replacements Replacements within components are used to enable the user to swap out individual pieces of content for appropriately sized alternate atoms, elements, molecules, and templates. For example, where the Universal Content Block (UCB) is used in smaller components, you can often swap to: - avatar/avatar group - badge/badge group - button/button cluster - toggles - sparklines - star rating For larger content areas, templates are easily swappable to: - card group - description list - feed - form block - stacked list - steps - Tables This allows for a great deal of versatility within the individual components. ‍ ![](/_blog-images/designcasestudy-img-38.png) ‍ ## Properties We have enabled all the properties for components, which offers an atomic level of customization. For example, a badge icon enables you to change - badge shape - icon size - icon case (color) - icon variation ...all from the design panel. ‍ ![](/_blog-images/designcasestudy-img-39.png) ‍ ## About the Designers ![Alisha Ober](/_blog-images/designcasestudy-img-40.png) ![Josh Hailpern](/_blog-images/designcasestudy-img-41.png) ![neotax banner](/_blog-images/designcasestudy-img-42.png) --- ### The IRS’s Proposed Form 6765 Would Change How You File for an R&D Credit URL: https://www.neo.tax/blog/the-irss-proposed-form-6765-would-change-how-you-file-for-an-r-d-credit Published: 2024-03-08 Author: Neo.Tax Category: R&D Tax Credits Summary: The proposed form asks for more detailed accounting of qualified expenses which will make the process of filing even more time-consuming and stringent. In September 2023, the IRS released information about their [proposed changes to Form 6765](https://www.irs.gov/pub/irs-utl/form-6765-proposed-changes-fy24.pdf), the “Credit for Increasing Research Activities”, which businesses must file when claiming their Federal R&D Tax Credit. **The proposed form asks for more detailed accounting of your qualified expenses, which will make the process of filing even more time-consuming and stringent.** A newly introduced Section E will feature five questions, while the proposed Section F will require taxpayers to report both quantitative and qualitative information for each qualified business component. This kind of granular information used to only be required by the IRS during an audit; this change would mean that tax strategy and the collection of internal data will be all the more pressing for innovative businesses who plan to claim the hugely advantageous R&D credit they’re entitled to. We'll dive into the specifics of what you'll need to collect, collate, and share in order to file for an R&D credit should the proposed form be adopted, but the big takeaway is this: **accuracy, supported by quantifiable data, has become essential for those filing for the R&D credit**. Luckily, Neo.Tax’s automated filing LLM connects directly to your project-management and payroll & GL software to create a data-backed filing that already meets the proposed higher IRS standard. And best of all, you **can be confident** that your R&D credit filing is **backed by contemporaneous data** and **audit-ready**. --- Here’s what you’ll need to report in the newly added Section E and Section F should the proposed form be adopted: **Section E** You must include the amount of: 1. Business components that generate the credit 2. Officers’ wages included in QREs And you must answer whether you: 1. Acquired or disposed of a major portion of a trade or business 2. Identified any new categories of expenditures in the current year that had not been included in the base year 3. Determined any of the QREs following the ASC 730 directive **Section F** In Section F, you’d need to provide the controlled group member’s name, employee identification number, and principal business activity code as well as the following information for each business component (in all likelihood, this information would be a substantial attachment, similar to the R&D Tax Credit Study that Neo.Tax already automatically creates for taxpayers): - A description of the information sought to be discovered and the alternatives evaluated in the process of experimentation (using space provided). - Whether the business component was new or improved. - Business component type (product, process, computer software, technique, formula, or invention). - Business component use (sale, lease, license, or used by the taxpayer). - Software type, if applicable. - A breakdown of QREs for each business component by direct research wages, direct supervision wages, direct support wages, supplies, and contract research expenses. --- For controllers, accountants, or Heads of Tax attempting to file R&D credits the old-fashioned way, this change will add countless hours and may lead to an entirely new methodology of how QREs are identified and collected throughout the tax year. **But, for those ready to simplify the process, just **[**get in touch with a tax expert at Neo.Tax**](https://www.neo.tax/contact-us)**. ** We’ve used machine learning to streamline the process, replacing After-the-Fact Interviews with calculations based on Contemporaneous Data, just as the IRS prescribes. The R&D credit is a hugely valuable tool to incentivize innovation; we’ve innovated the way you can claim it. --- ### TEI and TR Present "Section 174: What We Know Now" Webinar URL: https://www.neo.tax/blog/tei-and-tr-present-section-174-what-we-know-now-webinar Published: 2024-02-15 Author: Neo.Tax Category: Education & Resources Summary: On February 21, the 2pm ET webinar will provide expert guidance into how best to strategize around tax treatment of R&D expenditures under Section 174. On February 21, the Tax Executives Institute and Thomson Reuters are holding a live webinar entitled “Section 174: What We Know Now.” The in-depth presentation, which starts at 2pm ET, will provide expert guidance into how best to strategize around tax treatment of R&D expenditures as they currently stand under Section 174. All this year, we at Neo.Tax have been [banging the drum](https://www.neo.tax/blog/a-simple-guide-to-r-d-capitalization) about the massive impact that the Section 174 change would have on innovative businesses. That’s why our partners at TR have invited Neo.Tax CEO Ibrahim to be one of the Section 174 expert presenters at the webinar. Section 174 has changed the landscape for American business taxes — it’s important to understand the new terrain! So, register for the webinar today. ## [**SIGN UP HERE** ](https://corporate.thomsonreuters.com/TEIsection174webinar?) **Learning Objectives:** _Upon completion of this webinar, attendees will be able to_: - Recognize section 174 costs - Understand the nuances of ambiguous areas related to the section 174 changes and clarifications provided in current guidance - Understand technical and procedural issues in computing section 174 costs **Presenters: ** - **_Sharon Rosiak, _**_Sales Specialist Director – Manufacturing Tax Process & Technology Enablement, Thomson Reuters_ - **_Paul DiSangro, _**_Partner, Mayer Brown_ - **_Ibrahim, _**_CEO, Neo.Tax_ --- ### The House Approves Bi-Partisan Bill to Revive R&D Tax Credit and the Child Tax Credit URL: https://www.neo.tax/blog/the-house-approves-bi-partisan-bill-to-revive-r-d-tax-credit-and-the-child-tax-credit Published: 2024-02-01 Author: Neo.Tax Category: Industry News Summary: The Tax Relief for American Families and Workers Act restores the Child Tax Credit and makes the R&D Tax Credit a powerful tool for innovators again. Yesterday, the House voted 357 to 70 to pass the Tax Relief for American Families and Workers Act of 2024. The bill is the long-rumored compromise to restore both the R&D Tax Credit to [its original, pre-Tax Cuts and Jobs Act form](https://www.neo.tax/blog/rd-capitalization-changes-why) and the Child Tax Credit, which was implemented during Covid to help working families. [As CBS News explained it](https://www.cbsnews.com/news/house-vote-tax-bill-child-tax-credit-business/): "The legislation would make it easier for more families to qualify for the Child Tax Credit, while increasing the amount from $1,600 per child to $1,800 in 2023, $1,900 in 2024 and $2,000 in 2025. It would also adjust the limit in future years to account for inflation. When in full effect, it could lift at least [half a million children](https://www.cbpp.org/research/federal-tax/about-16-million-children-in-low-income-families-would-gain-in-first-year-of#about-16-million-children-in-cbpp-anchor) out of poverty, according to the Center on Budget and Policy Priorities." And for innovative companies, the restoration of the pre-TCJA R&D Credit is also massive news. The TCJA had changed the cost-benefit analysis for research-minded American companies both big and small when it came to building innovative products. By creating aspects of R&D that had to be amortized rather than deducted in the same year, the cost of research and development rose exponentially. (Read our [Founder's Guide to R&D Capitalization](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization) to get a better sense of how the profitability analysis has shifted.) [The new law](https://www.finance.senate.gov/imo/media/doc/the_tax_relief_for_american_families_and_workers_act_of_2024_technical_summary.pdf) keeps the provision from the TCJA that makes it so R&D costs incurred outside the United States must be amortized over 15 years. However, if this law passes the Senate: "The provision delays the date when taxpayers must begin deducting their domestic research or experimental costs over a five-year period until taxable years beginning after December 31, 2025. Therefore, taxpayers may deduct currently domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026." By restoring the domestic R&D Tax Credit to its earlier form, where R&D costs can be deducted rather than capitalized, American companies are once again incentivized by business tax law to create new, game-changing products. It's still up in the air whether the Senate will approve the Tax Relief for American Families and Workers Act of 2024, but we'll let you know as soon as a decision is made. --- ### Companies Can Now Claim $500K in R&D Payroll Credits, New IRS Guidance Says URL: https://www.neo.tax/blog/companies-can-now-claim-500k-in-r-d-payroll-credits-new-irs-guidance-says Published: 2024-01-10 Author: Neo.Tax Category: Industry News Summary: For the 2023 tax year, a qualified small business may elect to claim up to $500k of its credit for increasing research activities as a payroll tax credit. Since 2016, companies could claim up an R&D Tax Credit of up to $250,000 of qualified expenses to be applied toward payroll taxes. But [the IRS just explained](https://www.irs.gov/businesses/small-businesses-self-employed/qualified-small-business-payroll-tax-credit-for-increasing-research-activities) in its guidance for the 2023 Tax Year that: “Provision 13902 of [the IRA of 2022](https://www.irs.gov/inflation-reduction-act-of-2022) increased the maximum amount of payroll tax research credit that a QSB can elect to apply against payroll tax liability from $250,000 to $500,000 for tax years beginning after December 31, 2022.” In (slightly) plainer English, that means that starting in the 2023 tax year, a qualified small business may elect to claim** up to $500,000** of its credit for increasing research activities as a payroll tax credit. Previously, taxpayers could only claim up to $250,000. Beginning with this year, the payroll tax credit must first be used to reduce the employer share of social security tax (up to $250,000 per quarter) after which the credit must be used to reduce the employer share of Medicare tax for the quarter. Any remaining credit, after reducing the employer share of social security tax and the employer share of Medicare tax, is then carried forward to the next quarter. The takeaway for innovative companies: the R&D Tax Credit has doubled in value as an offset for payroll taxes. [Get in touch with us](https://www.neo.tax/contact-us) if you’d like to learn more about what that means for your business in 2024 and beyond. --- ### Neo.Tax's Tax Season 2024 Calendar URL: https://www.neo.tax/blog/these-are-the-key-tax-dates-2024 Published: 2023-12-20 Author: Neo.Tax Category: R&D Tax Credits Summary: Department heads spend over 150 hours each year getting R&D taxes prepared for enterprise companies; here are the key dates to know for 2024 Tax Season! Department heads _spend over 150 hours each year_ getting R&D taxes prepared for enterprise companies! That’s why, at Neo.Tax, we’ve built a tool to streamline the arduous R&D tax process. But, even if you’ve gotten on board with the AI-empowered future of tax, it still is important to know the key dates coming down the pike. So, here’s a helpful calendar to guide you through the coming tax year… ‍ **January 24th** – 2024 Tax Season begins! The IRS will begin processing 2023 tax returns on January 24th! ‍ **January 31st **– Form 1099-NEC is due for nonemployee compensation paid in 2023 ‍ – AND: Final 2023 Quarterly Payroll Form 941 is due. (Form 8974 should be attached) ‍ **March 31st** – Deadline for a Neo.Tax customer to file (Form 1120) in order to receive Q2 R&D payroll offset. ‍ **April 15th, aka** **Tax Day! **– 2023 Form 1120 Corporate Tax Returns or a 6-Month Tax Extension is due. ‍ **April 30th** – First 2024 Quarterly Payroll Form 941 is due. (Form 8974 should be attached). ‍ **June 30th** – Deadline for a customer to file (Form 1120) in order to receive Q3 R&D payroll offset. ‍ **July 31st **– Q2 2024 Payroll Form 941 is due. (Form 8974 should be attached). ‍ **September 30th** – Deadline for a customer to file (Form 1120) in order to receive Q4 R&D payroll offset. ‍ **October 15th aka Extension Tax Day!** – Final deadline to file a timely Form 1120 Corporate Tax Return if an extension was filed by April 15th. ‍ **October 31st** – Q3 Payroll Form 941 is due. (Form 8974 should be attached). --- ### CF0to1: Nic Malianni, Head of Accounting at Notion URL: https://www.neo.tax/blog/cf0to1-nic-malianni-head-of-accounting-at-notion Published: 2023-10-03 Author: Ahmad Ibrahim Category: Education & Resources Summary: Nic Malianni on his journey from a winery to Grant Thornton to Intercom to Notion. As he explains: "the finance function really has to be strategic" The first thing to know about Nic Malianni is that he loves to hustle. Since the age of 12, he’s always had a job: construction, at a golf course, and, most recently, as Head of Accounting at [the connected workplace, productivity software company Notion](https://www.notion.so/). While in college at California Polytechnic State University in San Luis Obispo, he found himself without a job and felt the itch. So, Nic saw a Craigslist ad from the [Donati Family Vineyard](https://www.donatifamilyvineyard.com/) and got in touch. “I was 20 years old and you can’t really work at a winery when you’re not 21, but I just said, ‘Hey, I'll do your gardening. I’ll rake your bocce ball court. Whatever you need me to do, I'm happy to get my hands dirty,” he remembers. “So that got me in the door.” For the next three-and-a-half years, Nic became an indispensable cog at the winery. He took naturally to sales and to systems, getting the young winery’s offerings into local restaurants and grocery stores and managing sales reporting. “Their first vintage was 2003 and I started there when their 2005 was being released,” he says. “So, I consider it my first startup.” He is still a proud wine club member today. ### **Vineyards to Spreadsheets** Nic graduated with a Business Admin degree with a focus in Accounting, Finance, and Economics and dove into accounting. Many accountants focus on debits and credits and closing the books, but he’s always started with the needs of the business and viewed the problems with an accounting and systems lens. “It’s always been top of mind to help businesses run more efficiently through scalable systems and processes,” he says. He’s held onto the one feeling that’s proved a motor for his work life: “Curiosity.” “How do we do this? How can we do it better? How can we make it simpler to help us provide the best service for our customers or to alleviate some sort of pain that my team is feeling?” he says. “In general, finance systems have been pretty underserved for a long time. There's always the hottest new engineering tool or the hottest new marketing or sales tool. Finally, we’re seeing more and more new finance tools like Neo.Tax. I'm really excited about what I'm seeing in the market.” Nic sharpened his accounting skills at [Grant Thornton](https://www.grantthornton.com/) for four years after college, working on the audit side. “I personally chose Grant Thornton, because I wanted to have as many clients as possible to get a broad set of experiences,” he says. He worked with 50 companies, some private and some public, and got a rare look at their practices, their challenges, and what worked and what did not. He tapped the knowledge of colleagues who had extensive experience in audit but also on the technical side. “It’s a very research-driven profession,” he says. “It gives you a window into the _why_ behind the decisions of how a company makes their accounting decisions.” But after those four years, when Nic felt he understood the _why_, he began itching to answer another question: “The missing piece at an auditing firm is the _how_,” he explains. “Or put another way: the actual execution.” ### **From _Why_ to _How_** So, Nic joined [Intercom](https://www.intercom.com/), the AI-empowered customer service solution, in 2016 as the Accounting Manager, eventually moving up to the role of Assistant Controller by the time he left in 2021. “When I joined Intercom, I felt ready to exercise my entrepreneurial/building mindset,” he says. “‘How can I help build this thing and translate that _why_ and to the actual execution behind it?’ That really excited me and it was challenging. Very, very challenging.” The biggest challenge he faced which he hadn’t been expecting was how essential it was to be a champion for your accounting advice. On the audit side, he’d existed in a place where there were clear rules; it was sometimes confusing why best practices weren’t always followed. But on the other side, he realized that a skilled accountant or controller needed to have the ear of a decision-maker to guarantee that the resources were made available. “You have to be able to compellingly explain the _why_ in order to get the resources to build the best systems,” he says. “If you don't have resources, then you need to figure out a bandage to account for this in a way that is going to be acceptable until you can build that long-term solution.” Nic realized that was why so many startups struggled with their systems and books early on. “It often falls on the grit of the accounting and finance function to actually go in and just get it done,” he explains. At Intercom, he used the technical skills he gathered in his years at Grant Thornton and then expanded them by becoming an operator. Eventually, as the company grew, he moved into a management role. “I felt like, ‘Hey, I want to get back to building mode,’” Nic remembers. “That's what attracted me to Notion. And, you know, I've been building ever since.” ### **The Notion Love Is Real** Nic wanted to get back to “building mode” but he also wanted to join a company that people loved. “If you look at [Notion’s YouTube following](https://www.youtube.com/channel/UCoSvlWS5XcwaSzIcbuJ-Ysg), Twitter following, and all the socials, it’s insane how much people love the product,” he says. “The affection for a business software product is just absolutely phenomenal. And it's really rare.” So, he started talking to people at Notion and realized that their engineers and executives were at the top of their game. “I wanted to be a part of it,” he says. When Nic arrived at Notion in 2021, the company was still just 65-70 employees. He took over as Head of Accounting. Intercom grew rapidly in Nic’s years there; Notion’s growth has been even more exponential. “I had to grow just as fast as Intercom did and then I joined Notion and the speed has been even faster than that,” he says. “When I first joined, there were a lot of great people and there was a foundation that was put in place. But we’ve had to continue to uplevel the way that we worked, and the way that we serve the business and our customers, and how to do it in a faster manner.” In his two-plus years so far, his team has added 16 people, Notion’s gone through two acquisitions, and they’ve had to implement numerous systems. ​​With all the steps that I've made in my career, it's kind of been out of curiosity,” Nic says. “If I ever feel like I’ve stagnated from a learning perspective, I know it’s time to change course.” Obviously, the Notion ride has been a learning overload. He’s loved every minute of it. “It's been a journey,” he says, grinning. “The thing that I've enjoyed the most is that every quarter, there's something new to do and something new to learn.” Obviously, there is ongoing accounting work to be tackled, but “for the most part, it’s not that stereotypical 9-to-5 where you show up and know what you're gonna do every day. That has been very fun from a learning perspective.” At a startup, the role of accountant becomes a mix of traditional and strategic, which Nic loves. “Especially earlier stage your role is to help the company grow in any way. From a financial side, there are core accounting things like bookkeeping and taxes but there are also strategic tasks like, ‘How can we help design the pricing and packaging to ensure that they’re going to work both from a systems perspective and a customer experience perspective while helping the business grow?’” Nic also mentions that it’s the accountant who looks at every bill and contract, so they should be providing valuable insights to the Go-to-Market teams about how other companies are building their sales engines, pricing their products, and designing their checkout flow. “The true back-office transactional side is just table stakes,” he says. “But for a startup to succeed, the finance function really has to be strategic. You can live in that land of customer experience and sales strategy, and drive strategic decisions if you want to. I think every accounting and finance person should.” --- ### CF0to1: Praveer Melwani, CFO at Figma URL: https://www.neo.tax/blog/cf0to1-praveer-melwani-cfo-at-figma Published: 2023-09-12 Author: Ahmad Ibrahim Category: Education & Resources Summary: In 2017, Praveer Melwani was Figma's first biz ops hire. Learn how he went from Union Square Advisors to Dropbox to Figma to the $20 billion sale to Adobe. In September 2022, [Adobe announced that it was buying Figma, the extremely popular product design tool, for $20 billion](https://news.adobe.com/news/news-details/2022/Adobe-to-Acquire-Figma/default.aspx). Since its founding a decade ago, [Figma](https://www.figma.com/) has become an indispensable part of the tech world’s product design toolbag, so the news reverberated across the Valley and beyond. For Figma CFO Praveer Melwani, it wasn’t a ripple compared to a much bigger wake rolling through his life. “​​It’s funny how timing works out,” he tells us, grinning. “My wife's due date was the same day we were scheduled to announce.” Praveer is from Toronto and went to school at Western University in Ontario where he studied business administration. His dad was a dental supply salesman and Praveer always envisioned that he’d join the family business, but he had an itch to get out of Canada for a while before coming home. So, he applied for jobs in San Francisco, landing a role at [Union Square Advisors](https://www.usadvisors.com/) in the summer of 2012. “It was just a little bit of luck and good fortune,” he says. Based on where it all went from there, that framing seems like more than a bit of an oversimplification. ### **The Rise at Dropbox** [Dropbox](https://www.dropbox.com/) was scaling rapidly in 2014 and the Strategic Finance team was interviewing hundreds of candidates in an effort to hire the best handful of people to come join. Praveer wowed in his interviews and was offered a spot on the burgeoning team. “Rather than go through the standard venture, hedge fund, or private equity route, when the folks at Dropbox presented this opportunity that sounded like more than finance, I said yes,” he explains. “I had the fluency and understanding of what's going in the P&L so I could help drive some of the business-oriented tasks forward, but, ultimately, I was more excited to learn how this business ticked and moved. That's what drew me in.” [The StratFin team that Ajay Vashee](https://www.neo.tax/blog/cf0to1-ajay-vashee-general-partner-at-ivp) had been tasked to build was designed to attract high-achievers who thought differently about finance. The mandate at the time at Dropbox was “get the very best people in the world to join,” as Ajay explained it, to keep the company on a best-in-class growth trajectory. It proved a perfect fit for Praveer. “I view my capabilities as someone who can come in as a structured thinker and help someone frame a problem in a thoughtful way,” Praveer says. “But I get excited about learning and I get excited about having a much broader footprint than just like the core spreadsheet and operating model.” Eventually, that desire to expand his footprint led him to leave Dropbox for the Business Operations team at NerdWallet in September 2016. Ten months in, he was laid off. “Within six months, I was already getting to the place where I was itching to do something a little bit different. Soon enough, it was a last-person-in, first-person-out situation,” he says. “But, had I not gotten that kick in the pants to go and look, I don't know if I would have found Figma.” He credits good luck for much of his success but does admit it’s not the whole story. “Timing, the relationships you have with the people around you, and your ability to react are what make you successful,” he says. “But I think so much of it — the majority of it — is luck.” ### **Designing Finance at Figma** When Praveer was hired at Figma in July 2017, it was still a small startup. He was the first business ops hire; his role was amorphous but he quickly was tasked with managing finance and accounting. “My first set of projects was setting up our Stripe instance, making sure that the data was flowing in the right way,” he remembers. “We were using Gusto for payroll and so everything was on autopay. I was just hoping and praying that things were going right.” Quickly, Praveer began thinking strategically — _once a StratFinner, always a StratFinner_ — and began spending time working in concert with the team launching Figma Pro. “I spent a lot of my energy making sure that the data pipelines were really flowing between our financial systems and what we were seeing on the product side,” he says. That ultimately became my foray to drive conversation around how our users are navigating our funnel and what they’re doing once they're actually on one of our paid plans.” That first bit of insight gave Praveer entry into high-level leadership conversations. “I found myself being able to provide insights and it actually informed some of the product decisions and the ways in which we structured our sales orgs.” It became clear to the Figma executives that Praveer could deliver strategic advantages if they let him build a finance team. “Over the next couple of years, we then went from a one-tier company to having a couple of tiers. We went from purely self-serve to having a sales team,” he says. “The team that I was going to architect would tackle building the business infrastructure that would keep pace with the company as we were scaling.” As he hired, Praveer would give applicants a “silly Excel test” — he figured: “If you understood the ins and outs of the financial statement, you can build a model.” Soon, he built out a team that could tackle any financial task that was thrown their way. “I still would say that today, I'm by no means an expert, but I have tried to hire around myself so that I can feel confident in the collective expertise at Figma,” he says. “I brought on Tyler Herb as our controller who previously was at Slack for a number of years. We brought on an audit committee chair on our board, Kelly Kramer, who was previously a storied and tenured CFO at Cisco. So, I think surrounding myself with the right people was essential.” ### **Finance Thrives By Mastering Product and Sales** Praveer has always been curious to understand all aspects of the businesses he’s worked for and he stressed that same curiosity for his team at Figma. “I pushed my org to always have a pulse on the core sets of drivers and metrics for what is actually the heartbeat of Figma and how can we use that to help drive conversations with the product or to go-to-market teams,” he explains. “I’ve always had that desire and excitement to go and learn about an area that you may not necessarily need to know everything about for your core craft on the finance team. But if you do, that knowledge will make you that much more of an impactful partner, which is part of the core fabric of the culture that we built.” His finance team was first and foremost focused on driving good financial accountability and hygiene, because “we had aspirations of where we wanted to go,” he says. “We felt that if things keep going, we're going to be in a position where we're going to have wanted to have the rigor a couple of years prior, so that we have a set of financials that folks feel are reliable and thoughtful.” But that didn’t mean Praveer’s team focused solely on accounting. He’d created a culture where finance could be a motor for innovation and he always encouraged his team to explore every aspect of the company and see where they could lend insight. “And individuals were getting rewarded for it. They were seeing that the conversations that they were getting pulled into were really unique,” he says. “The experiences that they were having at Figma were materially different than they had in other places because they were pushed to do more.” ### **Building a Tool Customers Want to Pay For** Early on at Figma, the team offered the service for free. As Praveer sees it, [CEO Dylan Field](https://www.theverge.com/2022/11/8/23445821/figma-adobe-acquisition-design-vr-ai-meta) and his team were craftspeople and wanted to keep tinkering until their tool was perfect enough to charge for. But it was clear to the investors and the business side that Figma had found a pocket of users who knew their product design tool was indispensable. Everyone at Figma finally agreed that charging was the best way to make certain their business — which designers had come to rely on — would be sustainable for the long run. “Customers explained, ‘The only way that we can continue to invest in Figma as a tool for our broader design team is to know that you guys are actually charging for it because that's how we can know this tool isn't going to go away,’” Praveer says. “And so, part of our story is: if you've got something, charge for it, because people will know that you see value in it. They’ll invest in the solution you’re delivering and the system will grow as well.” Figma took the lesson to heart. They knew their core customers were designers and they wanted to be as transparent as possible with them. They believed there was value in that trust. “We don't discount our product. What you see on the website is what you get. We're really transparent with it and we wanted to use that to our advantage over time,” Praveer says, explaining that their competitors approached pricing very differently than Figma. “We would lean on that transparency and then we’d put our money where our mouth is by delivering outsized value to the customer. That's been one of the core values that we believe continues to be true: we want to make sure that as we invest in the community of designers who ultimately will become our advocates. We want to make it feel like it's a no-brainer decision to pay for the tool.” ### **A Network of Expertise** Praveer came to Figma when there were fewer than 30 employees as the first biz ops hire. Today, the company has over 1,300 employees and has announced a pending $20 billion sale to Adobe. So, how did Praveer grow in his role as his responsibilities and Figma expanded? “When someone asks me what they should do when they're new in a role, I always say: find that individual that you can ask questions to and not feel any shame. Honestly, no question is a dumb question, especially when you're trying to build something for the first time.” He leaned heavily on peers from his days at Dropbox who had moved on and helped scale other businesses. There isn’t a situation he can think of when he took on a new task for the first time and didn’t make a call to someone to ask a question or two. It’s that network of expertise that’s allowed him to feel confident as he makes decisions on a larger and larger scale. “Being able to just pick up the phone and learn from folks, whether it’s an idea either for benchmarking or for the type of person to hire, I don't think I could have been able to do it without having folks in my corner,” Praveer says. “So, when given the opportunity to speak and share or have a conversation, I'm always in this like pay-it-forward mentality. I will have a conversation with nearly anyone because I also get a lot of energy from it, but I also think that's what's gotten me to the place that I'm in right now.” So, yes, he’s been lucky. But clearly, good fortune is just a small part of the equation. --- ### When is the Extension Tax Deadline for S-Corps? URL: https://www.neo.tax/blog/when-is-the-extension-tax-deadline-for-s-corps Published: 2023-09-01 Author: Ahmad Ibrahim Category: Industry News Summary: The extension tax deadline for S-Corps is September 15, 2023. So, now is the time to get your books in order and to file your R&D tax credit! A reminder from Neo.Tax: The tax deadline for S-Corps is coming soon! For any S-Corp — defined by the IRS as “corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes” — the extension tax deadline is **September 15, 2023**. So, now is the time to get your books in order and to file your R&D tax credit. [Set up a call with one of our tax experts](https://www.neo.tax/contact-us) who can walk you through our automated, streamlined process — because you’re filing in September, you’ll be able to claim the tens of thousands you’re owed by the start of Q4 rather than waiting until 2024. An important note for California S-Corps: though [the state granted extensions for all California companies](https://www.ftb.ca.gov/file/when-to-file/due-dates-business.html) impacted by last winter’s storms, S-Corps still need to file in September rather than October along with all other companies. Don’t hesitate to reach out with any questions — [we’re here to help](https://www.neo.tax/contact-us)! --- ### An Update on Section 174 for Tax Extenders URL: https://www.neo.tax/blog/an-update-on-section-174-for-tax-extenders Published: 2023-08-24 Author: Neo.Tax Category: Industry News Summary: An Important update from Grant Thornton on Section 174, R&D Capitalization, the debate in Congress, and what it means for you! 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](https://www.neo.tax/blog/a-simple-guide-to-r-d-capitalization). 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:](https://www.grantthornton.com/insights/newsletters/tax/2023/hot-topics/aug-14/tax-legislative-roundup-extenders-enforcement-pillar) "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](https://www.crfb.org/build-your-own-child-tax-credit) 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](https://www.neo.tax/contact-us) if you want to learn more about how Section 174 may affect your taxes this year and how we can help you! --- ### R&D Tax Credits for the Apparel Sector URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-apparel-sector Published: 2023-08-23 Author: Neo.Tax Category: R&D Tax Credits Summary: The apparel industry is a space where innovation is treasured. That means, more likely than not, your company is owed money via the R&D Tax Credit! 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. ### Does your apparel business qualify for the R&D tax credit? 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to apparel businesses? Some ways your business may be eligible for R&D tax credits include the following: - Developing new clothing innovations that could be eligible for utility patents - Designing and developing product and performance specifications for new fabric and material construction technologies - Developing new manufacturing processes - Manufacturing, evaluating, and testing samples and prototypes - Developing new software that allows customers to view inventories, make purchases, and track merchandise online using web or mobile applications ### How Neo.Tax can help your apparel business file for the R&D Tax Credit? 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for Food and Beverage Businesses URL: https://www.neo.tax/blog/r-d-tax-credits-for-food-and-beverage-businesses Published: 2023-08-22 Author: Neo.Tax Category: R&D Tax Credits Summary: Food & Beverage is a space overflowing with innovative thinkers. So, chances are you're owed an R&D Tax Credit — Neo.Tax is here to help claim it! 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. ### Does your food and beverage business qualify for the R&D tax credit? 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to food and beverage businesses? Some ways your business may be eligible for R&D tax credits include the following: - Developing new product flavors, appearances, textures, or health benefits - Developing methods to extend shelf life - Developing new or improved manufacturing technology, processes, and procedures to increase yield, reduce waste and by-products, improve safety, or reduce labor - Producing prototype product samples for testing and validation of new recipe formulations - Designing and developing specialized tools or prototype tooling and machines ### How Neo.Tax can help your food and beverage business file for the R&D Tax Credit? 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for Communications and Media URL: https://www.neo.tax/blog/r-d-tax-credits-for-communications-and-media Published: 2023-08-21 Author: Neo.Tax Category: R&D Tax Credits Summary: Neo.Tax has created the ultimate guide for Communications and Media R&D Tax Credits to make sure you know which expenses qualify for the credit! 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 Communications and Media R&D Tax Credits. ### Does your communications and media business qualify for the R&D tax credit? If you operate in the communications and media 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to communications and media? Some ways your business may be eligible for R&D tax credits include the following: - Designing and developing new or expanded network architecture and technology - Designing and construction of physical networks, including copper and fiber-optic network data cabling and wiring - Developing telecommunication networks to serve customers; for example, integrating voice, message, or voice-over-IP (VoIP) capabilities into a web or mobile application - Developing software and technology to improve transmission capacity - Developing network tools to monitor and measure network performance ### How Neo.Tax can help your communications and media business file for the R&D Tax Credit? 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 communications and media 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for Manufacturing & Consumer Products URL: https://www.neo.tax/blog/r-d-tax-credits-for-manufacturing-consumer-products Published: 2023-08-18 Author: Neo.Tax Category: R&D Tax Credits Summary: Manufacturing & Consumer Products businesses creating new designs for customers and for their factories may qualify for the R&D Tax Credit! 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 Manufacturing & Consumer Products R&D Tax Credits. ### Does your manufacturing & consumer products business qualify for the R&D tax credit? If you operate in the manufacturing & consumer products 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to manufacturing & consumer products? Some ways your business may be eligible for R&D tax credits include the following: - Engineering and designing new products and processes - Improving the design of existing products - Improving manufacturing or production processes - Developing special tooling and equipment used in the manufacturing process - Designing, building, and testing prototypes - Prototype the validation of new or modified products ### How Neo.Tax can help your manufacturing & consumer products business file for the R&D Tax Credit? 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 manufacturing & consumer products 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for Wineries & Breweries URL: https://www.neo.tax/blog/r-d-tax-credits-for-wineries-breweries Published: 2023-08-18 Author: Neo.Tax Category: R&D Tax Credits Summary: Most people running wineries and breweries would never think to file an R&D Tax Credit. But if you're using innovative processes, you could qualify! 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 Wineries & Breweries R&D Tax Credits. ### Does your winery or brewery qualify for the R&D tax credit? If you operate in the wineries & breweries 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to wineries & breweries? Some ways your business may be eligible for R&D tax credits include the following: - Developing new or improved fermentation and distillation processes - Developing or implementing automated processes - Developing new or improved bottling and packaging processes - Designing and developing improved fermentation or bottling equipment - Developing new or improved product formulations ### How Neo.Tax can help your winery or brewery file for the R&D Tax Credit? 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 wineries & breweries 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for the Agriculture Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-agriculture-industry Published: 2023-08-16 Author: Neo.Tax Category: R&D Tax Credits Summary: Agriculture businesses don't know that they can file for an R&D Tax Credit. Hybridizing, automation, and many other costs are qualified research expenses! 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 Agriculture R&D Tax Credits. ### Does your agriculture business qualify for the R&D tax credit? If you operate in the agriculture 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the agriculture industry? Some ways your business may be eligible for R&D tax credits include the following: - Hybridizing during the development of new strains of crops, plants, or livestock - Improving harvesting techniques to increase yield or production efficiency - Developing or implementing automated processes - Developing or implementing new ways to protect crops from disease or insect pests - Developing and implementing new irrigation systems - Developing new or improved packaging processes ### How Neo.Tax can help your agriculture business file for the R&D Tax Credit? 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 agriculture industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for the Healthtech Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-healthtech-industry Published: 2023-08-15 Author: Neo.Tax Category: R&D Tax Credits Summary: Healthtech companies are almost always eligible for the R&D Tax Credit. Here are some examples of qualified expenses under the law. Learn more here! 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 Healthtech R&D Tax Credits. ### Does your healthtech business qualify for the R&D tax credit? If you operate in the health tech 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the healthtech industry? Some ways your business may be eligible for R&D tax credits include the following: - Developing code for new software architecture or algorithms - Developing functional enhancements and new capabilities for existing applications, designed to create a competitive advantage - Developing flexible, high-quality, and scalable rule engines to manage and automate the methods of sorting, searching or parsing of health care data - Developing specialized technologies, such as Internet of Medical Things devices to collect and analyze healthcare data - Developing new software applications to interact with customers or vendors ### How Neo.Tax can help your healthtech business file for the R&D Tax Credit? 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 healthtech industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for the Retail Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-retail-industry Published: 2023-08-14 Author: Neo.Tax Category: R&D Tax Credits Summary: What expenses at a retail company qualify for the R&D Tax Credit? Find out some common examples in this guide to the R&D tax for the retail industry. 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 Retail R&D Tax Credits. ### Does your retail business qualify for the R&D tax credit? If you operate in the retail 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the retail industry? Some ways your business may be eligible for R&D tax credits include the following: - Researching appropriate materials to account for weight, strength, durability, texture, and cost - Designing, modeling, prototyping, fabrication, and installation of exhibits, displays, and mannequins - Designing and developing retail fixtures, including displays, lighting, and shelves - Development of new attachment methods or techniques - Engineering of new assembly and installation methods ### How Neo.Tax can help your retail-industry business file for the R&D Tax Credit? 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 retail industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### CF0to1: Ajay Vashee, General Partner at IVP URL: https://www.neo.tax/blog/cf0to1-ajay-vashee-general-partner-at-ivp Published: 2023-08-01 Author: Ahmad Ibrahim Category: Education & Resources Summary: IVP's Ajay Vashee tells his journey from Morgan Stanley to NEA to Dropbox and finally to one of the best jobs in Venture Capital in this month's CF0to1! What’s the best path to the top finance job at a unicorn? And how does a first-time CFO who guides a company to an $8.2 billion IPO get his start? For Ajay Vashee, General Partner at [IVP](https://www.ivp.com/), who spent 8 years at [Dropbox](https://www.dropbox.com/), it started on Wall Street. “I actually had a really good experience in investment banking,” Ajay tells us of his time at Morgan Stanley with a smile. “Most people don’t.” But for Ajay, who parlayed an internship at [Morgan Stanley](https://www.morganstanley.com/) while a student at Columbia into an analyst role at the bank, the experience was illuminating. The training programs allowed him exposure to Excel, three-statement modeling, and IPOs — all of which would inform the rest of his career. “It was a great way to learn the nuts and bolts of finance,” he says. And another perk? His work on cleantech financing brought him to the West Coast and eventually led him to the world of software. Ajay went from Morgan Stanley to [NEA](https://www.nea.com/). He spent time studying Series A startups at a fascinating moment for tech: 2008-2012. There were some misses — “we invested in Fisker over Tesla, which was not a good decision in retrospect” — but also some big wins. “We were one of the earliest investors in [Tableau](https://www.tableau.com/about/press-releases/2019/salesforce-completes-acquisition-tableau),’” he remembers. “Eventually, Salesforce bought the company for $15.7 billion.” At the stage of company that Ajay was investing in with NEA, the real strategy is to “bet on the team and the potential,” and one company stood out from the rest: Dropbox. They did their diligence on the firm and tried to invest, but Dropbox didn’t need money at the time. One of his colleagues, Sujay Jaswa, was so taken with Dropbox that when they offered him a job, he decided to leave NEA for the growing startup. ### **StratFin at Dropbox** For the next year, Sujay and Dropbox cofounders Drew Houston and Arash Ferdowsi recruited Ajay. They finally convinced him. “The pitch which resonated with me was, ‘If you’re convinced that you want to build a career as an investor, a lot of the best investors are folks who were operators themselves,” Ajay says. “‘They understand the businesses and companies they’re looking at better. They’re able to empathize with the founders and entrepreneurs that they fund. They are able to genuinely help the companies they invest in on their journey to an IPO and beyond. And you’re just going to have a better nose for the business.’” Ajay arrived and felt like he had “this unfair advantage” because of his time working as a VC. “Dropbox totally was in the early innings, but on that trajectory at the time,” Ajay says. “As a VC, you know how every company is doing and I knew that Dropbox just had something special going on.” He’d been observing board meetings, so understood what would eventually differentiate Dropbox. “It is bi-directional because you walk in armed as an operator now with all this context on what great looks like across your portfolio: what does a great software company look like? What’s a great growth rate? What are SaaS metrics that matter? When can you tell someone’s going off the rails? How do you have difficult conversations with folks that you have to let go on the team? What do you look for in great talent?” he says. He had joined a company with “a bare-bones finance organization”: a couple of people on the accounting team and one person working on payroll and accounts payables. He was the first financial planning and analysis (FP&A) hire. Right away, he got started on getting a company model up and running. “Just having a view of the business that was reflective of what was actually happening at Dropbox and working through our first planning process and building a budget and things like that,” he says. “Then there were some one-off projects: ‘Hey, we want help modeling what this new product could look like if we were to launch it’ or ‘We want to understand: if we add this feature, then are we going to improve monetization?’ That's how it worked initially.” Eventually, Ajay was tasked with building an entire Strategic Finance team. The mandate at the time at Dropbox was “get the very best people in the world to join” to keep the company on a best-in-class growth trajectory. “It was about team building and hiring really smart, high-horsepower folks to join our finance team. We wanted to hire folks who were coming out of Goldman Sachs or top venture funds or awesome consulting programs and a lot of them didn’t want to join in like a traditional FP&A role. They wanted to do something that was a little bit more strategy-oriented; that could have more impact,” he says. “So, we created this team called Strategic Finance to facilitate bringing that talent in. That was the genesis of StratFin.” ### **Growing Along With the CFO Role** In 2016, Ajay was promoted from Dropbox’s Head of Corporate Development to Dropbox CFO. He’d spent time getting to know “the nuts and bolts of finance” in his first position as Head of Finance and then spent “a lot of time in a more strategic role on M&A” in his next role, which prepared him for the CFO position. But still, Ajay admits that he was an unconventional choice for the position. “Our CEO Drew didn’t feel like he had to go hire the person who’d done it three times if he felt like someone had that potential internally,” Ajay says. “Not all leaders and CEOs operate that way. But he really had a leaning towards that and he had an eye for talent.” So, Ajay took the reigns of the finance side of a company with 500 million users in 2016. Right away, he looked for mentors and found them on Dropbox’s board. “We had a couple of former CFOs on the board who felt like they could play a really active mentorship role with me when I was there. The former CFO of Priceline and Booking and then the former CFO of Nike were both on our board,” Ajay says. “They were like, ‘Hey, we’re willing to take Ajay on as a mentee and mentor him through stepping into the CFO role through Dropbox’s IPO and beyond.” He leaned on those mentors, and his unique experience — starting in investing and then building and growing with the finance team at Dropbox — to master the role. And, critically, Ajay continued to hire the best people for the role and lean on them to get to the best result. “So, I had a CEO who was willing to make that bet. I had a couple of former CFOs on the board who had a lot of credibility. And then I built a team around me that had much more experience than me working at a public company in a finance function and who'd been through the IPO process in the world of accounting FP&A, tax treasury, those kinds of functions,” he says. “So, it was the three different elements there that allowed me to do what I did.” ### **The Dropbox IPO** “I became CFO, a year later, we were on file with the SEC to go public, and then three months after that we were public,” Ajay says. “So, like 15 months after I became CFO, we were a public company.” It’s a staggering feat to imagine going from zero CFO experience to a public offering at $8.2 billion. But Ajay nailed it. He’d spent years watching the finance side of Dropbox from every angle and helped walk everyone else through the intricacies. “We ran mock earnings calls and we had a really buttoned-up accounting-close process. We had world-class auditors we were working with,” he says. “We were operating like a public company almost right away.” He’d seen the differences on the finance side of a growth-stage private company and of a public company. “The level of rigor with which you’re examining the business, the way you’re running your planning process, the way you’re holding every team accountable to what they deliver for the company, the way you’re narrowing down your forecast accuracy and running your budget versus actual, the way you’re talking about the business and measuring it and writing about it, all that changes,” he says. “It really was night and day.” But Ajay and his team actually loved the process — I know, it sounds strange! But the guy who’d started as an analyst was invigorated by the process of drilling deep into his own company. “For us, our IPO was actually a very energizing and illuminating process. It forced everyone to come together and think really hard about who we are as a company, what we want to be in the future, and to communicate that in a way that the world could understand,” he says. “For investors who knew nothing about the business until we walked into a meeting as part of a roadshow, can we communicate in 30 minutes exactly what we do in a way that would be very compelling and get them to invest? They'd have to understand. The press would have to understand. Anyone reading our S-1 would have to understand. So, it forces you to go through that exercise, which is like strategically very beneficial to the company if you get it right.” Clearly, they got it right. Dropbox’s stock rose more than 40% the day it first traded as a public company in 2018. ### **Strategic Financing is Key for Companies** In 2021, Ajay left Dropbox to become a general partner at IVP. But he leans on the lessons he learned at Dropbox when considering investments. He tells us a story about Dropbox which helps illuminate the power of strategic finance for a growing company. Dropbox initially scaled on AWS, but there was a moment when they realized they should invest in building their own cloud-based infrastructure. Finance was brought in right away to tackle issues like investment timelines and depreciation schedules for infrastructure. “Our team was really intertwined with everything we did as a business,” he says. “They were intimately involved in: What should we build next? What should we buy next? How is that going to inflect our trajectory?” There was intensive modeling done in unison by the finance and infrastructure teams, and eventually, the decision was made to take on the massive effort. “It was a four-year project. We spent hundreds of millions of dollars to build out our own data center footprint across the country and then migrate exabytes of data from AWS to Dropbox,” Ajay says. “That project allowed us to grow from a 42% gross margin to an 80% gross margin. And speaking of what allows you to go public: moves like that opened up the IPO option for the company. Because the 40% gross margin SaaS business is not super exciting for a public market investor. But an 80% business is very exciting.” Today, he tells the CFOs and Heads of Finance that he mentors to be pushing for 30-40% of your dollars to be spent on future growth — whether that’s people or other investments that can pay off down the road. “The thing that is a red flag for me is when I hear a finance leader, the go-to-market team, or the sales team, and part of their planning process is asking, ‘What’s the plan for next year?’” he says. “We have a major issue if that’s the way your finance organization is operating versus them saying, ‘Here’s the plan for next year.’ The ones that say, ‘Here’s the plan, and here’s how we’re going to make it happen,’ are the ones who will realize the full potential of a company. If your finance team is not doing that, then you are not realizing your potential.” --- ### R&D Tax Credits for the Fintech Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-fintech-industry Published: 2023-07-28 Author: Neo.Tax Category: R&D Tax Credits Summary: What steps should my Fintech take to claim the R&D Tax Credit and what expenses count as qualified expenses that are eligible for the credit? 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 Fintech R&D Tax Credits. ### Does your fintech business qualify for the R&D tax credit? If you operate in the fintech 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the fintech industry? Some ways your business may be eligible for R&D tax credits include the following: - Developing code for new software applications or platforms - Developing functional enhancements and new capabilities for existing applications, designed to create a competitive advantage - Developing flexible, high-quality, and scalable rule engines to manage and automate complex business structures and data models - Developing specialized technologies, such as artificial intelligence or voice recognition applications - Improving the cybersecurity for existing applications ### How Neo.Tax can help your fintech business file for the R&D Tax Credit? 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 fintech industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for the Life Sciences Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-life-sciences-industry Published: 2023-07-27 Author: Neo.Tax Category: R&D Tax Credits Summary: R&D Tax Credits are great ways to raise non-dilutive capital. If your business is in the Life Sciences space, you're probably owed money! 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 Life Sciences Industry R&D Tax Credits. ### Does your life sciences business qualify for the R&D tax credit? If you operate in the life sciences 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the life sciences industry? Some ways your business may be eligible for R&D tax credits include the following: - Developing new or improved pharmaceuticals, devices, or diagnostics - Developing production processes for new products - Manufacturing experimental clinical trial lots of pharmaceuticals - Developing or improving drug formulations to reduce side effects or dosage - Developing new medical products, devices, equipment, or technology, as well as next-generation products and product improvements ### How Neo.Tax can help your life sciences business file for the R&D Tax Credit? 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 life sciences industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for the Construction Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-construction-industry Published: 2023-07-26 Author: Neo.Tax Category: R&D Tax Credits Summary: The R&D Tax Credit can be a valuable tool to extend runway and raise non-dilutive capital for construction companies. Here's how! 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 Construction Industry R&D Tax Credits. ### Does your construction business qualify for the R&D tax credit? If you operate in the construction 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the construction industry? Some ways your business may be eligible for R&D tax credits include the following: - Designing unique energy-efficient or sustainable infrastructure-building systems - Designing innovative methods to construct wastewater-treatment technologies or bridge or roadway structures - Developing innovative wastewater-treatment technologies - Designing renewable-energy infrastructure - Developing new or improved construction techniques ### How Neo.Tax can help your construction business file for the R&D Tax Credit? 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 construction industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for the E-Commerce Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-e-commerce-industry Published: 2023-07-25 Author: Neo.Tax Category: R&D Tax Credits Summary: The R&D Tax Credit is a non-dilutive way to raise capital for your company. If you're in E-Commerce, chances are you're owed thousands via the credit! 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 E-Commerce R&D Tax Credits. ### Does your e-commerce business qualify for the R&D tax credit? If you operate in the e-commerce 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the e-commerce industry? Some ways your business may be eligible for R&D tax credits include the following: - Development of machine learning or AI algorithms for dynamic pricing, demand forecasting, or customer segmentation. - Development of proprietary software solutions for inventory management, order fulfillment, or supply chain optimization. - Development of innovative payment processing or transaction management systems to enhance security, streamline processes, or improve customer convenience. - Development of data analytics and reporting systems to analyze customer behavior, track sales patterns, or optimize marketing strategies. - Development of innovative customer engagement tools, such as chatbots, virtual assistants, or interactive product configurators. - Optimization of website performance, speed, and scalability to handle high traffic volumes and ensure smooth user experience during peak periods. ### How Neo.Tax can help your e-commerce industry business file for the R&D Tax Credit? 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 e-commerce industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### R&D Tax Credits for the Healthcare Industry URL: https://www.neo.tax/blog/r-d-tax-credits-for-the-healthcare-industry Published: 2023-07-24 Author: Neo.Tax Category: R&D Tax Credits Summary: What are some qualified research examples specific to the healthcare industry? Here's what you need to know to claim the R&D Tax Credit. 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 Healthcare R&D Tax Credits. ### Does your healthcare business qualify for the R&D tax credit? If you operate in the healthcare 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: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. ### What are some qualified research examples specific to the healthcare industry? Some ways your business may be eligible for R&D tax credits include the following: - Functional enhancements and new capabilities for existing applications, designed to create a competitive advantage - Software to better manage customer relationships through improved collection, storage, and analysis techniques - Developing new medical products, devices, equipment, or technology as well as next-generation products and product improvements - Testing to satisfy domestic and foreign regulatory requirements - Developing new or improved pharmaceuticals, devices, or diagnostics ### How Neo.Tax can help your healthcare-industry business file for the R&D Tax Credit? 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 healthcare industry, 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](https://www.neo.tax/contact-us) with us today and see how much money you’re owed! --- ### Neo.Tax is SOC 2 Compliant! URL: https://www.neo.tax/blog/neo-tax-is-soc-2-compliant Published: 2023-07-10 Author: Ahmad Ibrahim Category: Product & Company Updates Summary: Neo.Tax has secured SOC 2, Type II Compliance Certification from the American Institute of CPAs (AICPA) because we value your data security! For the last few months, Neo.Tax has been working hard to secure SOC 2, Type II Compliance Certification from the American Institute of CPAs (AICPA). SOC 2, Type II Compliance is a voluntary certification, but at Neo.Tax, we believe ensuring the highest level of security and data protection for our customers’ information is a mandatory requirement. We built our product to help innovative companies streamline their tax and accounting needs — ensuring their valuable data throughout the process was not optional to our minds. “We are thrilled that Neo.Tax has successfully obtained SOC2, Type II compliance. This achievement is a testament to our unwavering commitment to data security and privacy,” Neo.Tax Co-Founder and CTO Firas Abuzaid says. “Our customers can and should have the utmost confidence in the protection of their sensitive information when they use Neo.Tax, and we will continue to prioritize their trust and maintain the highest standards of security going forward.” ### **What is SOC 2?** SOC 2, Type II stands for Service Organization Control Type 2 and is a cybersecurity compliance certification created and verified by the AICPA. The goal of SOC 2, Type II compliance is to make sure that third-party service providers store and handle clients’ data in a safe and secure manner. The certification was designed specifically for cloud-service providers that handle customer data — often, this data is highly sensitive information that companies are entrusting to B2B firms. ‍ ![SOC 2](/_blog-images/neo-tax-is-soc-2-compliant-img-1.png) At Neo.Tax, we use an automated platform to continuously monitor our internal security controls to the highest standards. We have live, 24/7 visibility across our company to ensure that our systems’ end-to-end security and compliance are seamless and secure. ### **Why does this matter?** In this connected world, cyber security is only as strong as a company’s weakest link. If any backdoor is left open, a hacker can find a way into a system and capture sensitive data. At Neo.Tax, we work with innovative companies and strive to deliver maximum value to let them keep growing and creating. That’s why it’s essential for us to ensure the highest standard of security for the data founders and finance teams entrust to us. Innovative businesses are partnering with more and more companies to help streamline processes like accounting, sales, and so much more. To make the process maximally valuable and efficient, we ask customers to entrust us with sensitive and confidential business data via the cloud. That’s why SOC 2, Type II compliance was an essential step — we want you to know we have the highest security standards. We would never ask you to share data if that were not the case. To meet the AICPA’s rigorous security and confidentiality standards outlined in SOC 2, Type II, every member of Neo.Tax from sales to engineering has committed to cyber-security best practices throughout our practice. Data security is paramount to everything we do. ### **Neo.Tax is committed to data security** At Neo.Tax, we know that security is paramount to our ability to serve our customers; we understand that the payroll, accounting, and tax data you share with us must always be protected—at all costs. That’s why, when we connect to your accounting software or HRIS system, we never fetch more data than we need to, and we never modify those systems, either. And all of that data, once it’s stored in our systems, is encrypted both in transit and at rest. But, if you don’t feel comfortable connecting Neo.Tax with your tools via an API integration, we can always support you with a simple import/export instead (e.g., a one-time file upload). When it comes to sharing data, we don’t believe it’s an all-or-nothing proposition, you should only share data you feel comfortable sharing. Still have questions? Contact us at support@neo.tax. --- ### CF0to1: Joe Ayers, VP, FP&A and Business Intelligence at Epicor URL: https://www.neo.tax/blog/cf0to1-joe-ayers-vp-fp-a-and-business-intelligence-epicor Published: 2023-06-05 Author: Ahmad Ibrahim Category: Education & Resources Summary: Joe Ayers leveraged a background in accounting to become VP, FP&A and Business Intelligence at Epicor. He's evolved his style to fit Postmodern Finance. The [Cult of the Founder](https://www.bloomberg.com/news/newsletters/2022-11-11/ftx-adam-neumann-mark-zuckerberg-and-the-cult-of-the-founder) was the story of the 2010s, so it’s not hard to imagine a kid growing up wanting to start their own company. But what sends someone on the career path toward the finance side? For Joe Ayers, Vice President, FP&A and Business Intelligence at [Epicor](https://www.epicor.com/en-us/), it was a path he was born on. “I have a lot of close friends and family members who are accountants, so growing up, I always heard about the profession and it sparked my desire,” Joe says. “It was always coached into me that it's a good foundation to start a career to build upon and that you have a lot of optionality to go from there.” So, Joe got his degree in accounting and then secured his CPA certification before taking a job at [KPMG](https://kpmg.com/xx/en/home.html) in 2009. He spent five years working there until reaching audit manager. “The biggest value for me was I understood how the numbers worked across various industries,” he says. “I could hone in on industries that I found interesting, and from there, I began to think: ‘Where do I want to pivot?’” First, he jumped to [Pacific Gas & Electric (PG&E)](https://www.pge.com/) but his move to the Bay Area eventually sent him toward the technology space. At Lithium, the community and social media management software company, Joe began to understand the way an accounting background could be used as a strategic tool for a company. He spent more than 5 years at the company, continuing to move up through mergers as Lithium became Khoros. Since having that initial realization about the strategic power of finance, Joe hasn’t looked back, eventually landing the role of Chief of Staff and VP, Finance Operations. “Traditional accounting has always been: ‘What are decisions other people have made and how do you make sure they fit within the bounds of GAAP?’ And that excites some people,” he says. “But for me, I wanted to understand the decision-making process and how accounting can align with strategy. So, I've kept kind of going further upstream.” ### Postmodern Finance At [Khoros](https://khoros.com/), Joe wore many hats: Revenue Accounting Manager; Senior Manager, Revenue; Director of Revenue, Sr. Director, Strategic Programs, and Chief of Staff to the CEO; and VP, Finance Operations. He evolved in his own roles along with an evolution he sees coming to the finance side of innovative companies as a whole. “We can call it Postmodern Finance,” he says. This term is something Joe learned to appreciate from [Ray Wang, CEO of Constellation Research](https://www.constellationr.com/research/rise-postmodern-cfo). Postmodern Finance, as Joe defines it, is the shift from the finance team as a gatekeeper for compliance and accounting that sits on data in a static manner to something more strategic. “If you're intellectually curious, the accounting and finance team typically have access to more data than almost anyone else in the company,” he says. “So, it's an untapped opportunity, where you can sit on the data and be dynamic.” At Khoros, Joe had a bird’s eye view to see everything from customer-facing interaction to the work of the engineers on the backend. He learned how his reading of the data could be an influential tool for decision-making at the company. “The engineers have their day jobs and the product team has their day jobs, but finance can be influential by saying, ‘Here are some insights into gross margins. Here are some interesting things about the selling process with this product relative to the others. Here are some things we may want to think about,’” Joe says. “We’re sitting on a lot of potential insights that should be dynamic. So, accounting and finance need to move from the static forecast process to a rolling forecast where you're moving beyond forecasting and becoming a strategist for the business. That, to me, is where finance is going, and that is way more motivating.” ### Data-Empowered Insight Joe has taken his theory of Postmodern Finance to the Financial Planning and Analysis (FP&A) and Business Intelligence role at Epicor, an enterprise software company that connects the Make, Move, Sell industries with ERP and supply chain capabilities. “Finance is moving away from that compliance, gatekeeper, _Federal Reserve Bank of the company_ role — you know, ‘We're here to dole out dollars, don't ask questions.’ That's no longer a helpful approach,” he says. “Our mission statement for finance at Epicor is to maximize the company's ability to make the best decisions possible with data.” Notice that the word “finance” is not in the mission statement. Joe tells us that’s on purpose, and it completely aligns with the value Epicor is working to deliver to its own customers in the form of data-driven insights to uncover opportunities. “See: I believe a lot of status quo outputs within finance and accounting are prone to significant transformation in the form of automation. I don't think the legacy finance team mindset passes muster anymore,” he says. “You have to lean more into the data and understand how to build models and equip the business to make the best decisions. We work for the business, the business doesn't work for us.” For years, finance and accounting teams have often had the reputation of representing the back office and therefore far removed from the nuances and appreciation for dealmaking. Joe says that the old model put finance and innovators in opposite corners, which hindered companies’ ability to grow strategically and responsibly. “A lot of times, finance has the deserved reputation at a company of ‘Gosh, I have to include finance.’ Instead, they should want to talk to us at the beginning and the onset of an idea,” Joe says, “We're on your side; we can provide the goalposts of how to scale towards a north star and maximize both our financial and strategic goals. They are not mutually exclusive.” Joe’s not saying the importance of audit and compliance will disappear; instead, he’s just pushing finance teams to expand their roles within companies by adding strategic thinking on top of the more rote functions. “Those things serve a purpose, but I think there's a broader mission that finance needs to lean into,” he says. “And we're certainly trying to do that here at Epicor.” ### From CPA to CFO Coming from a family of accountants, Joe entered the business world with eyes wider open than most. But what was he wrong about back when he was getting his start on the finance side? “In accounting, you have to have an appreciation for the minutia, but I was a little naive to think that all of the details are how the world is run,” he says. “Occam's Razor is generally right: the simplest explanation is usually the right one. But it takes time to get to that point where you can sift out the signal from the noise.” The other thing he’s learned is the value of translating the minutia into actionable data for non-accountants. He’s watched ”front office”, “back office” and every function in between struggle to understand each other for years and knows that the power of the finance side is only as strong as its ability to communicate with sales, engineering, customers, and leadership. “The sooner you can appreciate the importance of making it simplified for the business, the better,” he says. “I see a lot of finance professionals ineffectively translating their knowledge to a decision-maker outside their domain.” His foundation in accounting and career wearing many hats has bestowed Joe with a rare ability to translate the language of accounting to the business side and vice versa. It’s what has let him set Khoros and now Epicor on the path toward Postmodern Finance. As he explains it, automation + expertise will lead to data-empowered, financially strategic decision-making. And it all starts with making the finance team an ally instead of an adversary for innovators. --- ### Does Your State Offer an R&D Tax Credit? URL: https://www.neo.tax/blog/does-your-state-offer-an-r-d-tax-credit Published: 2023-05-25 Author: Ahmad Ibrahim Category: Education & Resources Summary: The Federal R&D Credit's the best non-dilutive way to raise capital as an innovative company. But how much money are you owed via the State R&D Tax Credit? For years, we’ve been working to make sure innovative companies claim the money they’re owed via the Federal R&D Credit. It’s never been more important to extend runway, and claiming your credit is the best way to secure non-dilutive capital. But even as we’ve watched the Federal R&D Credit become more widely known by founders and CFOs, many innovative companies still aren't aware that 38 states offer an additional State R&D Credit for companies. This is tax law built specifically to incentivize innovative companies like yours to, well, innovate. Not claiming it is just leaving money on the table… ### **What is the State R&D Tax Credit?** Like the Federal R&D Tax Credit, many states have a state-specific R&D credit to incentivize innovative companies to create jobs and products within their state. Currently, **38 states offer specific R&D credits** — each differs slightly, but many follow similar frameworks to the Federal R&D Tax Credit when it comes to Qualified Expenses and deadlines. ### **Which States Currently Offer an R&D Tax Credit?** As of 2023, [38 states offer their own R&D Tax Credit](https://www.neo.tax/blog/which-states-offer-the-rd-tax-credit) in an effort to incentivize job creation, and as a means to stimulate the local economy. Those states are: **Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Virginia, Wisconsin.** ![](/_blog-images/does-your-state-offer-an-r-d-tax-credit-img-1.png) While [each state has different rules](https://www.kbkg.com/research-tax-credits/research-development-tax-credit-state-benefits) on which expenses qualify, what type of companies can file for the credit, and how much the credit is worth, it’s always valuable for a company to claim every R&D credit they’re owed. Go to Neo.Tax and we can help calculate how much you’re owed and help you prepare your R&D tax credits today!**‍** ### **You’re a California-Based Company; How Much Can You Claim?** To give a sense of how valuable these credits can be, we wanted to share a case study of a California-based company that used Neo.Tax to claim both the Federal and State R&D Credit. For any research and development done within the state of California, the [California State R&D Credit](https://www.ftb.ca.gov/file/business/credits/california-research.html) is equal to the sum of: _1) 15% of qualified expenses that exceed a base amount + 2) 24% of basic research payments._ **A Series A IT Management Software Company approached Neo.Tax to help with their R&D Credit filing. With a revenue of $1.5M and $9M in expenses, the rapidly growing startup was able to claim $150,000 via the Federal R&D Credit. And how much more could they claim via California’s State R&D Credit? $50,000! ** ![California-Based Company; How Much Can You Claim](/_blog-images/does-your-state-offer-an-r-d-tax-credit-img-2.png) That extra $200K in their coffers was a game-changer during this precarious economic moment. And all it took was reaching out to Neo.Tax. As founders know, there’s almost no such thing as free money. But this credit was built by Congress and by 38 states to incentivize innovation within their borders. So, the money is available to innovators. All you have to do is claim it. [Book a call with an expert at Neo.Tax](https://meetings.hubspot.com/ben-eachus/rd-payroll-credit?utm_source=marketingsite-rdcredit-talktous&__hstc=68970126.5c536cf0e18a35e94498b8745d05fffe.1660939804951.1684864575629.1685032145476.93&__hssc=68970126.4.1685032145476&__hsfp=1223513178) and we’ll walk you through the entire process. It’s easy and takes less than 30 minutes. So, what are you waiting for? --- ### CF0to1: Sachin Sood, Chief Financial Officer at CRV URL: https://www.neo.tax/blog/cf0to1-sachin-sood-chief-financial-officer-at-crv Published: 2023-05-15 Author: Ahmad Ibrahim Category: Education & Resources Summary: Sachin Sood, CFO at CRV, has leveraged a foundation in taxes, a laser-focused work ethic, and a love of diving deep into issues into a fascinating career.. When Sachin Sood was in college at UC Irvine, a friend asked him what he planned to do with his economics degree. In retrospect, Sachin now knows, “You can’t do s*** with economics, quite frankly, unless you’re an East Coaster who wants to go into banking,” but as a 20-year-old college student, Sachin responded confidently. “I said, ‘I want to be a CFO,’” he remembers, grinning. “No joke.” In the two decades since graduating, Sachin has taken a winding path to the CFO chair at [CRV](https://www.crv.com/), the venture capital firm that invests in early-stage enterprise and consumer startups. “Now, did I know what CFO meant while at UC Irvine? Hell no. I had no idea what a CFO was going to do at that point,” Sachin says, laughing. “And now, in retrospect, it's completely different than I ever anticipated. But I knew I wanted to go down this route.” Like most career paths, the route only looks linear when seen through the rearview mirror. “Economics went into tax when I took the job at PwC. Tax went into a finance operational role when I was a controller, and that actually ended up changing to more global thinking and finance models at e.ventures,” he explains. “And Social Capital was a completely different mold altogether.” Since entering the workforce in 1999, Sachin’s “done a little bit of everything.” As he explains it: “For me, it's been hop, skip, jump.” ![A Foundation in Taxes](/_blog-images/cf0to1-sachin-sood-chief-financial-officer-at-crv-img-1.jpeg) _Ibrahim, Sachin, and Cailen at the Neo.Tax onsite_ ### **A Foundation in Taxes** Sachin credits a lot of his success in investing and venture capital to his time working on the tax side early in his career. He began at [PricewaterhouseCoopers (PwC)](https://www.pwc.com/) as an associate before moving to the role of Tax Manager at [Delloite](https://www2.deloitte.com/us/en.html) and Controller at [Saints Capital](https://www.saintscapital.com/). Those 8 years getting deep on tax allowed him to understand the foundational aspects of alternative investments such as venture, private equity, and hedge. “Taxation is the fundamental basis of a lot of what we do, especially in venture,” he says. “When government creates a tax credit, you'll see more money going into that type of business because companies know there's a tax incentive behind it. So, tax drives a lot of what we do. People just don't notice it sometimes, but it's critical.” While so much of the focus for pre-IPO companies is on valuation, those numbers are projections for shareholders. Taxation at the time of an IPO is the tangible reality for a VC firm. “People will mark up portfolios and down portfolios in this market, but it doesn't mean anything,” he says. “At the end of the day, it's all about when you exit, what price do you exit, when do you sell it at, what do you IPO at? You want to ensure that when there is an IPO window and there is an exit, it's structured properly to give the best tax structure.” His background in the fundamentals of economics and his years on the tax side has allowed him to remain laser-focused on the tangible reality. It’s the superpower that’s allowed him to thrive in his role as CFO. “I had an economics background. I went to work at a tax firm. I did portfolio management at Saints; a lot of it. And then I went to Social, where I did a little bit of everything, including working as a CCO at a RIA and sharpening legal skills,” he says. “Now, I’m in a role where all the skill sets are needed.” ### **The Five Types of CFOs** Over the last seven years, Sachin has been on the finance side at the global investment fund e.ventures, at Social Capital, and now at CRV. His time as VP of Finance at the two former companies and as CFO at his current company has allowed Sachin to dive deeply into the wide breadth of leadership styles across the tech world. “The investment side is all about learning,” he says. “At times, it's not just about one business that you learn; instead, you have to figure out how that business works across the different companies that focus upon. Each sector is so different. It's so nuanced.” But from his bird’s eye view, he’s identified what he likes to call “the five types of CFOs.” First, there’s the startup CFO, who is involved across many different slices of the company and must be a master of shareholder desires, cap tables, and much more. Next, there is the small-business CFO, who has to have a mastery of all that but also have a specialty that is specific to the company’s focus. The medium-sized CFO who takes on the role of scaling the business — they are a strategy specialist. “Then you'll have a division CFO at a public company, and finally the public company CFO,” Sachin explains. “What we end up seeing is, in the early stages of the company, you usually won't hire a CFO. You will hire an external firm to help you scale. You’ll hire a CFO when you have the breadth and the vision and when you have scale. The best way to say this: _you have revenue, at that point, you bring the CFO_,” Sachin says. But how do you select the correct CFO for your growing business? “It really depends on what the CEO of the firm is looking to do,” he says. “If you're looking at an exit, you're bringing someone a bit more strategic. You're bringing a banker who has a better understanding. And then if you're looking for an IPO, you bring in somebody who actually understands the business in the long run.” The real key is for both the CEO and CFO to understand the job of the Chief Financial Officer. “Quite frankly, a CFO’s job is just to know facts. At the end of the day, I always explain: ‘I present facts; it's up to you to make a decision,” he says. “If you want my opinion, I'm happy to provide it because I always have an opinion. But first I present the facts. _This is what you're spending. This is what the org is struggling with. This is where costs are compared to our competitors._ Ultimately, those choices get brought up to the CEO and then eventually a board member.” ### **Delegation Can Power Strategic Thinking** When Sachin first started as CFO at CRV, people kept asking him why he was always reading. He explained that to do his job well, he needed to dive deep into the weeds to fully understand as many aspects as possible of the core business. But now four years into his role, he’s come to understand the power of delegation. “It was really tough for me to be strategic because I knew I first had to learn the core business,” he says. “That’s why you have to rely on another partner. You have to rely on your controller. You have to rely on various controllers or people that are specialists.” Today, Sachin works closely with two controllers: one who is a tax specialist and the other who is a portfolio analyst who is a data analyst. Each controller can focus full-time on their specialties, ensuring every aspect of their slice of the business is perfectly in order. “I have people that specialize in specific components because I can see the value of having experts in the weeds,” Sachin says. “They're going to be better at that than I am, quite frankly.” Because Sachin worked in a controller role earlier in his career, he respects the value of great controllers. “It’s rolling up your sleeves. It’s ensuring the fact that your books and accounting records are in place, so there are no surprises at the end of the day,” he says. “They can allow the CFO to focus more on strategy, on thinking ahead, on tax savings, on thinking about how your portfolio is affected, and what the CFO can do to help out your portfolio companies. A great controller opens up a CFO’s mind to do more deep, strategic thinking.” --- ### The Language of R&D Taxes, Translated URL: https://www.neo.tax/blog/the-language-of-r-d-taxes-translated Published: 2023-05-11 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: You’re not an accountant, but for founders, CFOs, and CEOs, understanding the language of taxes can help you strategize from a position of strength. We aren’t breaking news to tell you that the language of taxes is remarkably obscure. There are tax code numbers, endless terms, numerous IRS tests, and so much more, which all become extremely important on Tax Day. You’re not an accountant, but for founders, CFOs, and CEOs, understanding the language of taxes can help you strategize from a position of strength. So, we’re proud to present “The Language of R&D Taxes, Translated”, a helpful cheat sheet from your friends at Neo.Tax :) ## Tax Lingo [**Capitalization**](https://www.neo.tax/blog/a-simple-guide-to-r-d-capitalization) - capitalization can be understood as a limitation on the timing in which you can take a deduction. There are two different subgroups of capitalization: depreciation (for physical assets) and amortization (for intangible assets). **Deduction** - a deduction can be thought of as an expense that is subtracted from taxable income. So, if you made $10 mil in revenue and spent $5 mil on R&D, deducting that amount would make your taxable income $5 mil ($10,000,000 minus $5,000,000). **Doing Business As (DBA)** - a DBA is a name other than one’s legal name that a person or company does business under. **Employee Identification Number (EIN)** - a nine-digit number assigned by the IRS, used to identify taxpayers who are required to file various business tax returns. [**NOL**](https://www.neo.tax/blog/rd-capitalization-has-arrived-for-now) - a Net Operating Loss means how much in the red you are in a given tax year. So, if your startup is pre-revenue or early-revenue, every dollar you spend on payroll, marketing, R&D, or rent over the amount brought in via sales would be counted as an NOL. **Unused NOL** - if the loss is not fully used up in the carryback years, any unused portion of the loss may be carried forward for up to 20 years after the NOL year. Any NOL that is not used up in the carryover period is lost. **Taxable Income** - the portion of your gross income that's actually subject to taxation. Deductions are subtracted from gross income to arrive at your amount of taxable income. **Total Expenses** - The cumulative sum of expenses from your accounting and payroll systems. ## R&D-Specific Lingo [**R&D Credit **](https://www.neo.tax/blog/5-common-misconceptions-about-the-rd-tax-credit)**- **enacted in 1981 to encourage research and development (R&D) activities in the United States, the R&D tax credit reduces tax liability for organizations that perform certain activities to develop new or improved products, processes, software, techniques, formulas, or inventions. You can get about 10% back on qualifying expenses such as wages, contractor costs, cloud hosting and infrastructure, supplies, and legal costs. **Expenses allocated to R&D** - direct expenditures relating to a company's efforts to develop, design, and enhance its products, services, technologies, or processes. **Qualified Expenses** - these are the expenses covered by IRC Section 41. They are the expenses eligible to be claimed as part of the R&D Tax Credit (they must pass the IRS’s 4-Part Test to qualify), such as: - W-2 Employees (W2, Box 1 Wages) - all taxable wages including bonuses and stock-option redemptions - Payments to contractors - [Cloud hosting and infrastructure](https://www.neo.tax/blog/a-1981-tax-law-means-aws-costs-are-a-tax-credit) - Patents - Cost of Supplies **The 4-Part Test **- for an R&D expense to qualify for the R&D Tax Credit, it must pass the IRS’ 4-Part Test. It must: - work to eliminate a technical uncertainty. - experiment via modeling, trial-and-error, simulation or other methods. - use an experimentation process relies on a hard science. - have the goal to create a new or improved product or system. **New or improved business component (product/process)** - _the first part of the 4-Part Test:_ The research must be focused on developing a new or improved business component for the company. A “business component” means any product, process, computer software, technique, formula, or invention held for sale, lease, or license or used in a trade or business. This can include improving the function, performance, reliability, or quality of an existing product or business component. **Technological in nature** - _the second part of the 4-Part Test:_ The research relies on principles of the physical or biological sciences, engineering, or computer science, including software development. **Attempts to eliminate uncertainty** - _the third part of the 4-Part Test:_ The research aims to eliminate uncertainty concerning the development or improvement of a business component. For example, the method or appropriate design is not apparent and not readily found in the public domain. Essentially, an uncertainty can be “How can we develop this new application?” or “Could this material make our product lighter without sacrificing durability?” **Process of experimentation** - _the fourth part of the 4-Part Test: _The research must be a process of evaluation and generally should involve comparing alternatives looking for the best solution. This includes the iterative trial and error process inherent in version-controlled software development. ![R&D-Specific Lingo](/_blog-images/the-language-of-r-d-taxes-translated-img-1.png) **Non-qualified R&D** **(IRC Section 174)** - these are R&D expenditures that _DO NOT_ qualify for the R&D credit: - R&D after Commercial production - Internal use software - Foreign Research - Funded Research - Social sciences, art, humanities **Deductible R&D** - In years prior, companies were permitted to deduct R&D expenses in the year they were incurred. Beginning in tax year 2022, that is no longer the case. Instead, you are now required to amortize those expenses over five for domestic R&D or 15 years for foreign R&D. **Foreign R&D** - R&D performed abroad by U.S.-located companies. [**R&D Capitalization**](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization) - as part of the TCJA, you can now only deduct a fraction of total R&D expenses. That means companies may now find that they have a taxable income, even through they are not yet profitable. The graphics below highlight this point: ![Foreign R&D](/_blog-images/the-language-of-r-d-taxes-translated-img-2.png) Before these changes were written into law, 100% of your R&D spend could be deducted from your income. If you brought in $1M in revenue and spent $2M on R&D to develop your innovative product, you would end the year with $1M in Net Operating Losses (NOLs). Now, you have to spread the R&D deduction over 5 or 15 years depending on if the spend is made in the United States or abroad—this is called amortization. Worse than that, only 6 months of the first year of R&D spend can be deducted. So, if the $2M you spent on R&D is domestic, you’ll only have $200K to deduct from your $1M. --- ### How Much Can My Company Claim Via The R&D Tax Credit? URL: https://www.neo.tax/blog/how-much-can-my-company-claim-via-the-r-d-tax-credit Published: 2023-04-13 Author: Neo.Tax Category: Product & Company Updates Summary: How much is an R&D credit really worth to your business? Here are four examples based on real companies to give you a better sense of the massive value... Tax Day 2023 is arriving at a precarious moment for innovative American companies. The last year has seen a wave of layoffs and a loss of value for many companies in industries like tech, manufacturing, and many other sectors. On top of that, changes to tax law with regard to [R&D Capitalization](https://www.neo.tax/blog/a-simple-guide-to-r-d-capitalization) have massively changed what companies will owe the IRS in April or October. That’s why it’s never been more beneficial for innovative companies to claim the R&D Tax Credit. The federal R&D tax credit is a 10% cash-back credit for product development expenses. Startups with \<$5M revenue and \<5 years of revenue can apply up to $250k against payroll taxes. All companies can apply it against income taxes or carryforward. Neo.Tax has built a software solution that maximizes your credit and prepares your filing in \<30 minutes. ![Company Claim Via The R&D Tax Credit?](/_blog-images/how-much-can-my-company-claim-via-the-r-d-tax-credit-img-1.png) ‍ ### But how much is an R&D credit really worth to your business? Here are **four examples based on real companies** to give you a better sense of the massive value of filing for the credit with Neo.Tax. ![&D credit really worth to your business](/_blog-images/how-much-can-my-company-claim-via-the-r-d-tax-credit-img-2.png) ### **A reminder from Neo.Tax:** Based on new guidance from the IRS, it seems likely there will be a more stringent view of amended returns — the burden of proof is on the company and will need to be even more detailed — which means waiting to amend the returns may become more expensive and cumbersome going forward. So, make sure to file your credit with your taxes (or to file an extension so you can get your R&D credit for this year). [**Book a call**](https://meetings.hubspot.com/ben-eachus/rd-payroll-credit?utm_source=marketingsite-getstarted) and we can walk you through all the ways to make R&D spend valuable for your innovative company! ![reminder from Neo.Tax](/_blog-images/how-much-can-my-company-claim-via-the-r-d-tax-credit-img-3.png) --- ### A Simple Guide to R&D Capitalization URL: https://www.neo.tax/blog/a-simple-guide-to-r-d-capitalization Published: 2023-04-10 Author: Neo.Tax Category: Product & Company Updates Summary: Even though R&D Capitalization was passed into law back in 2017, almost everyone expected the massive tax law change to be repealed before it ever took... Even though R&D Capitalization was passed into law back in 2017 as a part of Former President Donald Trump’s Tax Cuts and Jobs Act (TCJA), almost everyone expected the massive tax law change to be repealed before it ever took effect. But for the last year-plus, we’ve been preparing for the possibility — which has become a reality — that R&D Capitalization is here to stay (at least for now). Since September, we’ve written a collection of articles explaining [The What](https://www.neo.tax/blog/rd-capitalization-has-arrived-for-now), [The Why](https://www.neo.tax/blog/rd-capitalization-changes-why), and [The How-the-Heck-Do-I-Keep-My-Tax-Bill-Low](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization) of R&D Capitalization. We’ve also spent the year building the only software solution that solves for both R&D Tax Credit Filing and R&D Capitalization. So, [book a call and we can talk you through any specific strategy questions](https://meetings.hubspot.com/ben-eachus/rd-payroll-credit?utm_source=marketingsite). Without further ado, Neo.Tax presents: Your Definitive Guide to R&D Capitalization… ### What is R&D capitalization? The [TCJA changed the way](https://www.washingtonpost.com/opinions/2022/09/15/democrats-child-tax-credit-deal/) that R&D expenses can be deducted by American companies. Up until this Tax Year, R&D could be deducted all at once, meaning that innovative companies who spent on R&D would appear in the red both in their books and in the eyes of the IRS. However, the new law states that R&D expenses must be amortized over 5 or 15 years (depending on if the expenses are domestic or international). Therefore, only a fraction of a company’s R&D expenses can now be deducted in a given year. ![R&D capitalization](/_blog-images/a-simple-guide-to-r-d-capitalization-img-1.png) All of a sudden, pre-revenue startups will begin to appear in the black in the eyes of the IRS — so what would have been a valuable NOL will now be a hefty tax bill. And startups are not the only ones affected: CFOs from the largest American companies have warned Congress that this change will stifle innovation. **Yelp’s effective tax rate will **[**jump 20 percent this year**](https://www.wsj.com/articles/finance-chiefs-hope-new-congress-will-revisit-tax-rule-on-r-d-expenses-11674150952)** compared to 2019 due to R&D Capitalization!** ### Do we have to capitalize? We’ve heard from many companies who are confused by the change. They ask: if we don’t file an R&D credit, do we still have to capitalize our R&D expenses? The short answer is **YES**. An accountant is responsible for making sure your filing is compliant with the law. R&D Capitalization is the law (at least for now). So, not amortizing your R&D expenses is not an option. In the event of an audit, the IRS may be inclined to disallow any R&D credit and/or re-calculate the expenses claimed. So, as of now, any expense that can be categorized as an R&D expense _must_ be amortized over 5 or 15 years whether or not you file for the R&D credit. Therefore, companies that forgo the money they’re owed in the form of a credit will simply be burdened with an even higher tax bill this year. The true effect of the change is that it makes it imperative for innovative companies to commit to Tax Strategy year-round to minimize the impact on their tax bill. R&D expenditures that are considered “qualified expenses” can be claimed on an R&D credit; those that are not “qualified” now must be amortized. **The difference between qualified and not qualified R&D spend come Tax Day? Almost 10x.** ### What is a qualified vs. non-qualified research expense? Okay, so, clearly it’s essential to maximize “qualified” expenses and minimize “non-qualified” R&D costs. But what is the difference between the two? ‍ ![qualified vs. non-qualified research](/_blog-images/a-simple-guide-to-r-d-capitalization-img-2.gif) IRC §41 (Section 41) defined a “qualified” expense that can be claimed via the R&D Tax Credit as any R&D expense that passes the Four-Part Test: Permitted Purpose; Elimination of Uncertainty; Process of Experimentation; Technological in Nature. You can read more about the Four-Part Test here, but basically, these are expenses directly related to the creation of new products or novel uses of existing products (that includes wages, research expenses, supplies, and [even cloud computing costs](https://www.neo.tax/blog/a-1981-tax-law-means-aws-costs-are-a-tax-credit)). Now, IRC §174 (Section 174) defines the way companies must deal with _all_ R&D expenses: both “qualified” and “non-qualified”. But obviously, the larger the percentage of your R&D spend that “qualifies” for an R&D credit, the smaller the amount that you’ll need to amortize. Examples of R&D costs that are not qualified (aka do not pass The Four-Part Test) include: R&D after commercial production; research for internal use only; research funded by a grant; and most research tied to social sciences, arts, and humanities. To be an innovative company, R&D spend is essential. So, the key now is maximizing the percentage of that spend that qualifies for an R&D credit and minimizing the spend that must be amortized over 5 or 15 years. ![be amortized over 5 or 15 years](/_blog-images/a-simple-guide-to-r-d-capitalization-img-3.png) ### Why do we have to include foreign expenses? As long as you’re a company doing business in the United States, you have to pay taxes in the United States. In many ways, the reason for this massive change to R&D taxes is an effort to move more research jobs and spending back into the United States. The amortization structure is designed to punish R&D spend made outside of American borders. A quick example to explain why the 15-year amortization is so much more punitive than the 5-year amortization: In its simplest form, a deduction can be thought of as an expense that is subtracted from taxable income. So, if you made $10M in revenue and spent $5M on R&D, deducting that amount would make your taxable income $5M ($10,000,000 minus $5,000,000). But under the new R&D capitalization rules, the amendment means the deduction must be amortized, or in simpler terms, spread over 5 or 15 years, depending if the expense is domestic or international, respectively. On top of that, Year 1 can only be amortized as half a year, so that means only one-tenth or one-thirtieth of the R&D expenses can be subtracted from the taxable income that first year. So, if your company’s R&D occurred in the States, the equation becomes $10 mil minus $1M; if it’s done abroad, the equation becomes $10M minus $333,333.33. Eventually, over the 5 or 15 years, you will technically be able to deduct the same amount as before, but this obviously increases your tax bill in the near term by quite a bit. For the company that spent exclusively in the States — that’s a $9M taxable income; for the company that did R&D abroad, that’s $9.67M. **With the 21% corporate tax rate, for Year 1 taxes, that’s an extra $140K!** ### Will capitalization be repealed? This is the big question, and for now, the only responsible answer is: **NOT YET**. For the last six months, there have been rumors that a deal is close, but none have come to fruition. Many CEOs, CFOs, and even accountants are keeping their fingers crossed, but, unfortunately, the Crossed Fingers Method is not IRS-compliant. So, the safest route forward is to either file now and hope the law is repealed and companies are retroactively made whole for their 2022 or to file an extension, pay your quarterly taxes as if the law is still on the books, and then hope that your quarterly taxes are refunded if the law is eventually overturned. Either way, make sure to file an R&D credit when you file your taxes — they cannot be filed retroactively. As anyone who has watched Washington these last five years knows: betting on compromise is a longshot wager. So, plan as if the law on the books is the law of the land, and get your books in order. And, remember: we’re here to help! So, [book a call today](https://meetings.hubspot.com/ben-eachus/rd-payroll-credit?utm_source=marketingsite). ### The Takeaway If you’re a company involved in software, manufacturing, architecture, engineering, food, or construction, it’s very likely that you qualify for an R&D credit. It’s just as likely that you have expenditures that can be considered R&D spend. Two things to remember… 1. Any company with R&D expenditures _needs_ to amortize their deduction to be compliant with the new R&D Capitalization rules. 2. The best way to offset that cost and extend runway in a non-dilutive way is to claim your R&D credit. It’s the closest thing to free cash for innovative companies. It’s written specifically for companies like yours. So, don’t leave that money on the table! Neo.Tax is the only software solution that solves for both R&D Capitalization and for R&D credit filing. Let us help you navigate this massive change. We’ve been deep in the weeds on this for 12 months; we’d love to walk you through the best way to maximize your credit and minimize the impact of capitalization! ![The Takeaway](/_blog-images/a-simple-guide-to-r-d-capitalization-img-4.png) --- ### Neo.Tax & Bench Team up to Deliver a 360° Tax Solution URL: https://www.neo.tax/blog/neo-tax-bench-team-up-to-deliver-a-360deg-tax-solution Published: 2023-03-15 Author: Neo.Tax Category: Product & Company Updates Summary: Extending runway has never been more important than at this precarious financial moment. And changes to the tax code that just went into place mean that... Some exciting news ahead of Tax Season: [**Neo.Tax just partnered with Bench**](https://www.neo.tax/product/tax-bookkeeping), the accounting solution for startups! So, what does that mean for you? With [**Neo.Tax x Bench**](https://www.neo.tax/product/tax-bookkeeping), you'll have everything you need in one place. From tax calculation and preparation to financial management and bookkeeping, we've got you covered. Our solution is designed to streamline your tax process and help you make informed financial decisions with confidence. And there's more! Our R&D tax credit optimization tools can help you claim all eligible R&D tax credits and maximize your tax savings. With [**Neo.Tax x Bench**](https://www.neo.tax/product/tax-bookkeeping), you'll have access to a team of tax experts who will guide you through the process and help you claim all the credits you're entitled to. Bench offers bookkeeping, income tax prep, and filing done by experts so you can focus on growing your business. By partnering with Neo.Tax, Bench customers also get access to the only software solution that solves for both R&D filing and R&D Capitalization. Basically, [**Neo.Tax x Bench**](https://www.neo.tax/product/tax-bookkeeping) means your tax season just got a whole lot less stressful and a whole lot more valuable for your startup. Extending runway has never been more important than at this precarious financial moment. And changes to the tax code that just went into place mean that tax strategy will be the difference between massive bills and valuable credits this April. Good accounting is an essential part of building a valuable innovative business. [**Neo.Tax x Bench**](https://www.neo.tax/product/tax-bookkeeping) can make it effortless for you! --- ### Neo.Tax Named Top FinTech Product in the 2023 Product Awards! URL: https://www.neo.tax/blog/neo-tax-named-top-fintech-product-in-the-2023-product-awards Published: 2023-03-10 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax was selected by Products That Count, Mighty Capital, and Capgemini as one of the Best Products for Product Managers! We couldn’t be more excited to announce that Neo.Tax has been named a Top FinTech Product in the [2023 Product Awards](https://productsthatcount.com/2023-product-awards-the-winners/). The Product Awards, presented by Products That Count in partnership with Mighty Capital and Capgemini, is the only awards show designed to celebrate the tools that help Product Managers build great products. Nominees are chosen by Products That Count’s product manager network, and winners are chosen by an independent Awards Advisory Board composed of top product leaders. This year’s Board included product leaders from companies like Intuit, Oscar Health, and Macy’s. Neo.Tax is the only software solution that gives companies a 360-degree view of their R&D expenditures — we’ve solved for everything from R&D Credit filings to R&D Capitalization. By giving innovative founders, CFOs, and CPAs the ability to understand the true cost of spending on R&D, Neo.Tax can make sure innovation remains a valuable tool for American companies committed to building the future. “The bar for what makes a great product gets higher every year,” said SC Moatti, founding CEO of Products That Count. “Neo.Tax is a testament to that. We expect them to keep defining what it means to be at the cutting edge of product, not only in 2023 but also in the years to come.” “This is particularly exciting for us for a number of reasons. First, I'm a product manager turned founder, so product is really at the core DNA of what we do at Neo.Tax and we take great pride in building our product. It's awesome to get that kind of recognition from folks that really know great product,” said Neo.Tax cofounder and CEO Ibrahim. “Secondly, because our product helps other product companies build great products by allowing them to get a credit for any investments that they made in developing new products and new features, this is doubly cool. Thank you so much for this award!” --- ### CF0to1: Alex Song, VP of Finance and Capital Markets at Ramp URL: https://www.neo.tax/blog/cf0to1-alex-song-vp-of-finance-and-capital-markets-at-ramp Published: 2023-03-07 Author: Ahmad Ibrahim Category: Education & Resources Summary: How does someone become VP of Finance and Capital Markets at Ramp, the finance automation platform helping over 13,000 businesses save time and money? How does someone become VP of Finance and Capital Markets at [Ramp, the finance automation platform helping over 13,000 businesses save time and money](https://ramp.com/)? “Right place, right time,” Alex Song says. “It can look like everything was deliberate, but I kind of got lucky with this opportunity.” If you believe that, we have a bridge to sell you… In reality, Alex rode a double major from Stanford and an MBA from Harvard into a series of positions where his unique brand of precision, accuracy, and academic rigor allowed him to thrive. His decade in the investment world taught him valuable tools that he now uses at Ramp as an operator. Most of all, the unforgiving natures of the public markets instilled one especially valuable lesson. “Across every job I've had in the investment world, there is a respect for rigor and hard work,” he says. “If you're intelligent and you have the aptitude, you're resourceful and you work hard, you should be able to get to the answer, whatever the answer may be.” #### **Thoughtful Work and Entrepreneurial Grit** After a few years at BlackRock and Morgan Stanley, Alex made the move to [Bain Capital](https://www.baincapital.com/), where he worked as an investment analyst. Bain is based in Boston, far from Wall Street and its sales culture. “You weren't in the flow of things in New York City, where you have to contend with brokers calling you up and inundating you with all sorts of ideas,” he says. Instead, Alex had time in the office to dive deep into research, working through data to identify good investment opportunities. “I really liked the sheer academic rigor of that particular job. It was a large organization run by academically-oriented people, who were deeply thoughtful,” he says. Alex left Bain to pursue his MBA from Harvard and took a job at [Crayhill Capital Management](https://crayhill.com/) after graduating. The firm had just been founded by two portfolio managers from Magnetar, which is a $30 billion, well-established, 20-year-old hedge fund. He chose the firm because he would be the first employee at the burgeoning company. It was exciting to get in on the ground floor; he loved the startup energy. “That experience taught me two things. One: I’m drawn to more entrepreneurial experiences. And two: there’s real tangible value in entrepreneurial grit,” he says. “To succeed at a startup, you can't just be an investment manager; you have to build a business. I love the business-building component.” He stayed at Crayhill for almost four years, and more than any other job, that was the one that most prepared him for his role at Ramp. “I joined Crayhill as the first finance hire, and wore many different hats while also being an investor,” he says. “When I first started, I had a specific set of mandates, but at a startup, the reality is: you also have to pay attention to the business-building stuff. You have to build a team, be able to communicate effectively, and be able to be a mentor and a friend to the people around you.” #### **Ramping Up** A decade into his career, Alex began to have the entrepreneurial itch to help build a business again. He was working at [Sculptor Capital](https://www.sculptor.com/) by then and had begun searching for the next opportunity. Always the analytic thinker, Alex realized that hedge funds were dwarfed in relative GDP share by companies on the operator side. “On top of that, accelerated personal and professional growth also mattered,” he says. In July 2020, when he joined Ramp, the company was barely a year old. Alex arrived with a mandate to build out a capital markets program and a strategy around the balance sheet. His years on the buy side gave him specific insight into how Ramp’s business should operate and how they should manage working capital. But his other important role was to bring Ramp’s financial reporting in-house. Alex had honed his entrepreneurial skills in his years at Crayhill and began to build a finance team at Ramp. Accounting was an important first step, and he knew he needed to create a dynamic finance operation. “As a leader, hiring is integral. There was probably one point when I was probably spending more than 50% of my time recruiting, interviewing, and sourcing candidates,” he says. But finding the right candidate is only the first step in team building. “I certainly place a lot of emphasis on nourishing and mentoring new talent,” Alex says. Over his three years at Ramp, Alex has grown the finance team to 13 people — they are divided between strategic finance, FP&A, accounting, payroll, and capital markets. #### **How Finance Can Superpower a Company** Alex recommends a book called _The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success_. “The main thesis is that your job as a CEO or a management team is capital allocation and thinking through how to efficiently allocate capital,” he says. “Ultimately, that's the role that finance plays: as a startup, you are constantly making a series of short-term and long-term bets.” Some companies lean towards instant ROI plays like Facebook ad buys, while others invest in hiring engineers for projects that may not ship for several quarters and may not monetize for multiple years. “The question really is, if you're trying to maximize long-term value for your stakeholders, what is the right decision there?” he says. “If you think about it, that capital allocation exercise is an investment decision. So, having the lens of an investor in an operating role is a valuable combined hybrid view.” For any company, capital-allocation decisions are paramount, but it’s especially important for a rapidly growing startup like Ramp, which more than doubled its revenue run rate in the first six months of 2022 and doubled headcount YoY. “It's kind of like chaos theory, where any initial bump can have unintended consequences years down the line. We want to make sure that we are curating and course-correcting constantly,” he says. That’s why Alex stresses that good reporting is table stakes for a growing business. “And I don't mean just accounting. Accounting is essential, but you also need good business intelligence, good internal reporting, and good metrics,” he says. “If you can't collect and measure good data, you can't make good decisions.” At Ramp, he’s built a financial team obsessed with creating and leveraging clean, unbiased data. His years in investing demonstrated how advantageous good data can be. It’s helped Ramp grow into [an $8 billion company in under three years](https://www.forbes.com/sites/stevenli1/2022/11/14/they-built-ramp-into-an-8-billion-company-in-under-4-years-the-inside-story-of-how-they-did-it/?sh=6522897eab35). “In the hedge-fund industry, when you are collecting data, sourcing data, or buying data, it has to be statistically significant and it has to be accurate and unbiased. Those are the table stakes; you just need mastery over statistics,” Alex says. “I find that, by and large, most people, most of the time, work with very biased data sets and they don't even know it. They think they're making good decisions, but most of the time they're not.” Hedge funds taught him the value of hard work and getting to an answer. He’s brought that same ethic to Ramp. “If you have questions that you want answers to, there's always going to be an answer,” he says. “In almost every other industry, you can just say, ‘Well, this data just isn't available’ or ‘I don't know who to ask for that’ or ‘that data probably doesn't exist.’ But in the hedge-fund industry, uniquely, there's a lot less respect for the status quo and a lot more respect for just sheer grit and hard work. If the data set doesn't exist, create it, or go buy it, or go partner with subject-matter experts and create that data together. The public market is unforgiving.” --- ### The Software R&D Capitalization Paradigm is Changing in 2023 URL: https://www.neo.tax/blog/the-software-r-d-capitalization-paradigm-is-changing-in-2023 Published: 2023-02-27 Author: Jellyfish Category: Industry News Summary: The tax code is changing, for better or for worse. You need trustworthy data to understand engineering costs and determine what should be... The last year or so has been a tumultuous time for organizations around the world, from a stuttering “return to normal” as the pandemic has settled to a low roar in many parts of the globe, to a world economy that is yet again “unprecedented” in its behavior. As a result global financial markets remain volatile, the era of “cheap capital” has come to a screeching halt, and yet supply and labor shortages still put pressure on corporations to do **_something_** in order to ease shareholder concerns. The icing on the proverbial cake is that U.S.-based tax legislation is changing in 2023 in a manner that holistically alters how businesses will recognize R&D expenditures, changing their expected net profit and loss statements and overwhelmingly impacting businesses that focus on research and development. _gestures wildly to everyone remotely connected to the technology sector_ Many outlets are reporting on this change, but what does this exactly mean? In a number of posts by both Jellyfish and Neo.Tax, we [outline exactly what has changed with the process of accounting for R&D efforts](https://www.neo.tax/blog/rd-capitalization-has-arrived-for-now) in order to appropriately expense, [utilize for tax credits](https://jellyfish.co/blog/research-development-tax-credits-to-save-money/), or [capitalize those costs.](https://jellyfish.co/blog/what-why-rd-cost-capitalization/) The sunsetting of policies that allow companies to immediately expense a significant portion of R&D costs instead forces companies to amortize them over a set amount of time — 5 years for domestic R&D and 15 years for foreign R&D. The tl;dr takeaway is that companies that are currently unprofitable from a GAAP perspective will begin to look on-paper tax profitable and will be hit with hefty (and unexpected) tax bills this April. For larger corporations, the changes will vastly raise your taxable income, which can lead to a 4x-ed tax bill! This change in tax legislation has proven to be broadly unpopular and has sent many of our friends in corporate finance roles into an anxiety-ridden state to account for how different the finances will look. For us here at Jellyfish, we won’t necessarily state that this is either “good” or “bad” for organizations as a whole, but it does introduce a significant amount of change and will introduce new finance and audit processes as R&D-focused operations adapt to these alterations in reporting. It fundamentally modifies the status quo and for teams and companies that are already dealing with pressure coming from all sides of this new paradigm, such modifications may not (understandably) be welcomed with open arms. The shameless plug that we have for you, astute reader, is that while new processes and changes are not necessarily viewed in a positive light, there are effective strategies to ease the transition and ensure a greater degree of confidence that R&D-focused organizations are taking the right steps to ensure optimal financial reporting and outcomes in an accurate and timely manner. As is the solution with many speed bumps established in current workflows, automation and enlisting the help of capable and knowledgeable partners is key to overcoming limitations of an organization that’s been thrown a curveball. Regardless of how the balance shifts from being able to expense R&D efforts versus amortizing/capitalizing them over time, the critical foundation of any automation initiative will be to both accurately and precisely calculate the aforementioned R&D effort. **Ensuring an accurate basis of understanding for where costs are being allocated in different parts of the engineering process** is the first step in being able to answer many finance-related questions about product and engineering, a major part of which is the tax liability breakdown for engineering effort. **A consistent, solid basis of data hygiene allows for solutions such as Neo.Tax to interpret and make recommendations about the tax treatment of that data, ensuring compliance with the new R&D capitalization rules.** The ability to automatically generate and trust the data coming from your R&D effort calculations makes claiming R&D tax credits or capitalizing those domestic R&D efforts paves the way for significantly less manual work in both processes, hopefully relieving our compatriots on the finance and accounting teams of at least some of their anxiety throughout this tumultuous time (although they’re still going to come after you about submitting expenses late). And because the tax-law change has made the _how_ and _where_ of your R&D expenditures hugely consequential (R&D spend that doesn’t pass the IRS’s 4-Part Test is now 10x as expensive on Tax Day), having a 360-degree of your R&D spend can vastly expand your runway. Tax strategy has never been more important. ‍ TL/DR: 1. The tax code is changing, for better or for worse. 2. You need trustworthy data to understand engineering costs and determine what should be capitalized/amortized. 3. New solutions can ensure automated, trustworthy data and make recommendations to ensure tax optimization and compliance. 4. Jellyfish and Neo.Tax are here to answer your questions about ALL of this. ‍ To learn more about automating R&D cost reporting, check out [Jellyfish’s DevFinOps solution](https://jellyfish.co/platform/devfinops/) for effort calculation, and to alleviate worries around ensuring that you’re optimizing your R&D capitalization tax strategy, [Neo.Tax](https://www.neo.tax) would love to have a chat with you. --- ### Neo.Tax Launches ‘Neo.Tax 2023’ URL: https://www.neo.tax/blog/neo-tax-launches-neo-tax-2023 Published: 2023-02-14 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax, an early leader in simplifying and automating taxes for startups and businesses, today announced the launch of Neo.Tax 2023, a new software... SAN FRANCISCO–[Neo.Tax](https://www.neo.tax/), an early leader in simplifying and automating taxes for startups and businesses, today announced the launch of Neo.Tax 2023, a new software update to its signature platform. Specifically designed to address this year’s new federal tax codes, the platform will help to ensure that businesses not only remain in compliance but are able to maximize R&D deductions and optimize their tax strategy. Neo.Tax 2023 was built in response to The Tax Cuts and Jobs Act of 2017, which was signed into law and included a five-year provision that would completely change the way R&D expenses could be deducted. Officially in effect as of January 1, 2022, for tax year 2022, which companies will file taxes for in 2023, this change means that R&D expenses can no longer be subtracted from revenue and must be spread out over a period of time - five years for U.S. domestic-based activity and 15 years for international activity. This change impacts all businesses and startups, who can no longer deduct expenses in the year they were incurred, and now may be left with a tax bill despite not yet reaching profitability. “While we’re disappointed in congress’ failure to stop this tax change from going into effect, our customers are grateful that we’ve anticipated this tax change and built a solution to optimize it. The good news for businesses is that there is a solution to this – and it’s quite good,” said Ibrahim, co-founder and CEO of Neo.Tax. Neo.Tax 2023 ensures that its platform is not only compliant with these changes but is able to optimize R&D tax credits and save businesses money. Prioritizing accuracy and ease of use, Neo.Tax 2023 guarantees that all claims are reviewed by the Neo.Tax tax experts so they can be filed with the confidence of knowing that these returns are accurate. These tax credits were historically more relevant for smaller startups, with less than $5m in revenue, but are now valuable and relevant to all companies with sizable R&D spend – primarily technology businesses. “We’ve spent a lot of time planning for the eventuality of the new R&D tax rules and we are excited to share it with business owners,” said Ibrahim. “Our goal is to offer solutions that not only address the new tax change but will optimize a company’s tax strategy against it and give businesses an easy-to-use simplified product with the accuracy that business leaders deserve.” Since its inception, Neo.Tax has automated preparing the R&D Tax Credit for startups and accountants. Their software has simplified the complex process of applying for Federal and State R&D Tax Credits, saving businesses tens of millions of dollars. --- ### CF0to1: Daniel Kang, VP of Finance at Mercury URL: https://www.neo.tax/blog/cf0to1-daniel-kang-vp-of-finance-at-mercury Published: 2023-02-13 Author: Ahmad Ibrahim Category: Education & Resources Summary: In the first of our CF0to1 series, we spoke with Mercury's VP of Finance Daniel Kang, a member of Neo.Tax's CFO Advisory Board. His career has taken him... _Log onto LinkedIn or head to the business section of any bookstore and you’ll find an endless well of stories about the path to CEO. But the road taken to CFO is much less discussed. I’ve always been fascinated by the way finance leaders within companies progress through their careers and how that trail delivers insights into the way finance can be a strategic tool for a business._ _For the first in our CF0to1 series, I spoke with Daniel Kang, VP of Finance at _[_Mercury_](https://mercury.com/)_, the company more than 100,000 startups trust for banking. His career has taken him from banking to private equity to tech giant to fintech startups and has overlapped with some of the most fascinating companies and business minds in the space._ “During high school, my dream was to go work for the U.N. but then I read this book by [Thomas Friedman called _The World Is Flat_](https://www.amazon.com/World-Flat-History-Twenty-first-Century/dp/0374292884) and talked to a bunch of people who said, ‘Hey, actually, if you work for a business, look at all the positive impacts you can make,’ and my path changed,” Mercury VP of Finance Daniel Kang says. “I knew nothing about business or what I wanted to do within it. Business is such an abstract term, right?” But Kang followed the vagaries of life in business to NYU, where he was deluged with young people convinced that a life in banking was the dream. Even by his early 20s, Kang was pretty sure he’d be on another path — while classmates wrestled for summer internships on Wall Street, he took a position with [Pencils of Promise](https://pencilsofpromise.org/), the nonprofit that builds schools in Africa. Still, the realities of the world dragged him into banking; his degree wasn’t cheap. “I was like, ‘Crap, I have to get a proper job. I have all these student loans to pay back,’” Kang says. “So, I kind of got suckered into doing banking; the thing I’d told myself I wouldn't do.” #### **Growth from Discomfort** Two years at Bank of America led Kang to a job at [Vista Equity Partners](https://www.vistaequitypartners.com/), where associates were thrown right into the deep end. “In management presentations, you’re grilling CEOs, talking to people who would have been your boss's boss when you were on the banking side, and talking with them about raising finances,” Kang says. “I was being thrown into situations where, as a 24-year-old, it's really easy to feel uncomfortable.” Kang thrived in the discomfort — he learned he could hold his own during high-level discussions with executives at the portfolio company. Most of all, he realized he had a passion and a unique talent for problem-solving. As a student, he’d been drawn to philosophy before landing on the business path. “The largest impact of philosophy is the ability to dig deep into a problem, think about it from multiple angles, and try to come to a good opinion about a path forward,” he says. That skillset served him in PE dealmaking, but also in charting his own path. Kang left Vista when he found himself, being in San Francisco, wanting to work with more innovative tech companies that were changing the world around him versus ones that made good buyout candidates. So, he decided to jump ship, and he picked the perfect time to do it. It was 2014. Uber, Airbnb, and Square were all still private, in their Series B, C, or D stages. “There was a lot of excitement about this new wave of tech,” he says. “I started looking around and Square really spoke to me.” #### **The Other Side of the Square ** What drew Kang to [Square](https://squareup.com/us/en) was a personal connection: his parents had run dry cleaners when he was growing up and he was inspired by Square’s mission to make the lives of small business owners like his parents easier and better. He joined the finance and strategy team a couple years before the IPO — the company was small enough that he was allowed to wear a lot of hats, which was perfect for Kang. “This was the first time that I worked with people from very different disciplines from me where everyone thought about problems through extremely different lenses,” he says. “I partnered closely with our payments team, our Square Capital team, and then also everything that our CFO was supporting. So, like risk, but also random stuff like helping our facilities team with lunch budgets.” After three years, Kang being Kang went to then-CFO Sarah Friar and asked if he could switch to the accounting side. “It was less about, ‘Hey, I want to be a CFO in the future,’” he says. “It was actually much more so, ‘Hey, I'm working on the finance team. I know one aspect of it decently well. But there's this whole other side, on the accounting side, that I was curious about.’” People scratched their heads when they heard Kang was moving from the more glamorous strategic finance side to a junior role in accounting. But he’d heard the same questions when he left Vista for Square, so he trusted his gut. Luckily, he had a boss in Friar who was fully supportive — so, he spent a year as a revenue accountant. “I'm so happy I did,” he says. “For me, it's never been about role, title, and compensation. For me, it just comes down to the fact that I just want to learn stuff and want to be a master of the field I'm operating in.” #### **From 0 to 1 with Digit** After the IPO, Square grew and changed — for people on the finance side, the move from private to public alters the tenor of the work completely. Kang had learned a lot at Square, especially “that customer-oriented is the most important way to think about a problem, rather than purely from a finance lens.” But he decided he was ready to move again. This time, to somewhere much smaller. “I was really itching for that experience of building something from 0 to 1 or 1 to 2,” he says. Ethan Bloch, the founder and CEO of [Digit](https://digit.co/), approached Kang and asked him to come on. Kang was again drawn to the idea by his personal history. To create a product that made financial wellness effortless and non-judgmental spoke to him. “I come from an immigrant family. Managing personal finances and our household finance was a very important thing that was top of mind for us all the time,” he says. But in his first month, he started to worry he’d left Square too soon. “It was not a calculated move. Digit was super early. They were doing probably like 2 million ARR at the time. 30 people,” he says. “It was a gamble but ended up being the best decision I could've made in the experiences gained and relationships built.” By the time they sold the company in December 2021, Digit had grown exponentially: “We had scaled up revenue by like 50 million ARR, we had done a Series C raise from General Catalyst, and the team had grown a lot. We moved beyond just being a savings product to launch an investment product, and we launched a checking account product. I’m just really proud of what we had built over time.” #### **The Move to Mercury** After the deal closed, Kang knew he wasn’t ready to go back to working on the finance team at a public company. So, he started looking around again and had a conversation with Immad Akhund, the co-founder and CEO at [Mercury](https://mercury.com/), about coming on as VP of Finance. “Square and Digit spoke to me in very personal ways: the way I grew up, my family, and so on,” Kang says. “As for Mercury, it spoke more to my career experiences: At Digit, I ran a very lean finance team, so I was running payroll and all these things that were very much on the operational side. So, I know there's so much opportunity to build tools and products that can make lives easier for startup founders or startup finance teams.” Kang joined Mercury in July and has loved having the opportunity to run accounting, finance, capital markets, and so on. “I get a lot of latitude with the rest of the executive team to kind of poke my head in a lot of product areas where your finance person probably typically wouldn't be poking their head in,” he says. His experience in banking, in PE, in accounting and strategic finance at Square, and being a jack of all trades at Digit all inform his work at Mercury. And one unexpected feeling has kept bubbling up: “It's kind of weird but there's a point where you feel like, ‘Man, all my life experiences have led me to this point.’” #### **Why Finance?** So, why did a natural-born problem-solver who dreamed of working for the U.N., had a flirtation with philosophy, and didn’t even know what business meant find his way to a life on the finance side? Because Kang has been exhilarated by the fact the finance role is something like a mapmaker for a company. “I know this is a bit geeky, but the way I think about it is that there is the whole universe out there. There are a bunch of different forces at work within the universe and there's a standard equation that tries to formulate how the universe works into like very specific different factors and whatnot,” he says. “In a lot of ways, finance is similar. There's a lot of stuff going on within a business, all within the context of the macro environment. But how do you actually make sense of all that? If you want to navigate that universe, finance can be a map, charting a path forward and giving the best recommendations with the best available information.” For someone drawn to fixing problems by understanding every side of the issue, the macro-elements of finance — the ability to make the intangible tangible — has natural appeal. “The thing that finance teams are uniquely positioned to do is actually stitch together what's happening across the company into a unified view,” he says. So, perhaps the young Kang wouldn’t have been so resistant to the vague idea of “business” if someone had explained it to him that way in the first place. “This isn’t an original thought but: the best finance leaders are great storytellers as well, in terms of how they understand and interpret the business and can actually tell a story about where it's going in the future as well,” Kang says. His own career is a fascinating story. Where it’s going in the future? Only time will tell… --- ### Introducing The Neo.Tax CFO Advisory Board URL: https://www.neo.tax/blog/introducing-the-neo-tax-cfo-advisory-board Published: 2023-02-10 Author: Ahmad Ibrahim Category: Product & Company Updates Summary: Neo.Tax’s mission is to use tax to turn finance into a strategic lever for growing companies. In our experience, the savviest finance leaders appreciate... Neo.Tax’s mission is to use tax to turn finance into a strategic lever for growing companies. In our experience, the savviest finance leaders appreciate the novelty of our approach. So, as we continue to build and grow our offering, we’ve made it a priority to cultivate relationships with these finance leaders. Neo.Tax is a tool to optimize and maximize the value of taxes for companies — by working closely with the savviest minds who truly understand companies’ financial needs, we can make our offering indispensable. That’s why we’re so excited to announce the launch of our Neo.Tax CFO Advisory Council! The best tools are a symbiosis of great minds and great technology; so, we’re putting together an Avengers-level tax brain trust over at Neo.Tax… We’ll be announcing the members of our Neo.Tax CFO Advisory Council over the next weeks in a series of blog posts charting their career paths and highlighting their unique insights. Our first post about Daniel Kang, VP of Finance at Mercury, will be publishing next week. Keep an eye out. Tax Avengers, assemble! --- ### R&D Capitalization Is Here To Stay... URL: https://www.neo.tax/blog/r-d-capitalization-is-here-to-stay Published: 2023-01-23 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: At Neo.Tax, we’ve been preparing for months for the eventuality that Congress wouldn't strike a deal to end R&D Capitalization. We view it as our duty to.. This whole year, founders, CFOs, and accountants have been staring down a new tax paradigm. When former President Donald Trump passed his Tax Cuts and Jobs Act in 2017, it included [a five-year ticking time bomb](https://www.washingtonpost.com/opinions/2022/09/15/democrats-child-tax-credit-deal/) that would completely change the way R&D expenses could be deducted. In earlier posts, we’ve outlined how changing R&D from a deductible expense to a capitalized one would cost companies of all sizes dearly on Tax Day. There was [hope that legislators could overturn this costly tax law](https://www.neo.tax/blog/what-do-the-midterm-elections-mean-for-rd-capitalization) before the 2023 tax year (and even pass a law that would undo the effect on the 2022 tax year), but the lame-duck Congress was unable to strike a deal. So, for the foreseeable future, R&D Capitalization is here to stay. As we explained in our post [“R&D Capitalization Has Arrived (For Now)—Here's What You Need To Know,”](https://www.neo.tax/blog/rd-capitalization-has-arrived-for-now) the new law changes the way R&D spend can be deducted, which completely changes the calculus for pre-revenue startups. Up until 2023, R&D spend could be deducted all at once, which allowed companies in the red to stack NOLs. Now, R&D spend must be amortized fractionally over the course of 5 or 15 years, depending on whether the expenses are domestic or international. That means, tax bills will rise and NOLs will become harder to compile; it’s bad news for innovative companies. At Neo.Tax, we’ve been preparing for this eventuality. We view it as our duty to make taxes work for innovative companies, so **we’re proud to say that Neo.Tax has the only software solution that can cover all aspects of R&D tax strategy: from credits to amortization, and everything in between.** We’re the only company on the market that specifically addresses this new tax change. [Fortune 500 companies are treating this as a Big Forkin’ Deal](https://www.neo.tax/blog/rd-capitalization-is-a-big-forkin-deal), so it’s essential to get ahead of this before it’s too late. [Get in touch today](https://meetings.hubspot.com/ben-eachus/neotax-optimizer?__hstc=68970126.5c536cf0e18a35e94498b8745d05fffe.1660939804951.1669835250464.1671125134844.29&__hssc=68970126.19.1671125134844&__hsfp=836151255), or [come to our weekly webinar](https://us02web.zoom.us/webinar/register/WN_0MNm40ioQquThJcRvp2bSA) to learn more about how to weather this coming tax storm! --- ### A Poem About a Tax Time Bomb URL: https://www.neo.tax/blog/tax-time-bomb Published: 2023-01-05 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: The most unpopular tax time bomb just went off... what can you do about it? the world’s most unpopular tax change just went into effect. but how, if both parties hate this law, did it still go through? and why is everyone surprised that it actually happened? and why does it affect businesses that aren’t profitable? and what in the heavens can you possibly do about it? we answer all of these questions and more below =] ‍ ### how did this happen? _something_ had to pay for trump’s ‘17 tax cuts. a tax time bomb, scheduled to go off in 5 years. a terrible idea, but it balanced the budget perfectly. and having it go into effect 5 years later bought time. more than enough time for congress to repeal or delay it. if both sides could get their act together and work together. ‍ ### if everyone hates this law, how did it go through? republicans + democrats agree this law had to be repealed. but because both parties agreed on how terrible it is, neither party could use it as a bargaining chip, to get something else passed in return. i wish i was joking — i am not =/ ‍ ### what does this mean for businesses? companies can no longer write off r&d expenses. (costs related to building or improving products) this hits technology companies particularly hard. of all sizes! baby startups that aren’t profitable, up to raytheon cutting cashflow by $2b. yikes! ‍ when taxes made sense, the math used to be: $2m revenue - $5m expenses = -$3m losses the new math, starting tax year 2022, is now: $2m rev - ($5m/5years → $1m) = $1m profit worse, offshore r&d gets spread over 15 years: $2m rev - ($5m/15y → $300k) = $1.7m profit ‍ ### doesn’t the government want r&d? the government is being a little schizophrenic. on the one hand, r&d is rewarded with r&d credits. on the other hand, r&d is punished with capitalization. and those rewards + punishments are to differing degrees, depending on each company’s revenues, expenses, NOLs, etc. sounds like an optimization problem to me! to balance all of that out. ‍ ### what can i do about it? fortunately, this is the perfect problem for software to solve. [neo.tax](https://www.neo.tax/) connects to your accounting, payroll and business data, then scans the universe of all possible tax outcomes for your situation, to apply the tax strategy with the most optimal outcome for your business. ‍ ### don’t file an extension to deal with this later can you imagine getting an estimated tax bill from the irs, then going back in time to adjust your tax strategy, way after the fact as if that isn’t suspicious? --- ### How Does the U.S. R&D Policy Stack Up With The World? URL: https://www.neo.tax/blog/how-does-the-u-s-rd-policy-stack-up-with-the-world Published: 2022-11-30 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: During the rollout of his signature corporate tax cut, the Tax Cut and Jobs Act of 2017, President Donald Trump argued that his plan would stop U.S... During the rollout of his signature corporate tax cut, the Tax Cut and Jobs Act of 2017, President Donald Trump argued that his plan would stop U.S. companies from offshoring their work overseas. But [according to Reuters](http://reuters.com/business/how-offshoring-rolled-along-under-trump-who-vowed-stop-it-2021-01-19/), it failed to curtail the flow of American jobs abroad: _“During the four years of the Trump administration, [the Labor Department] program certified 2,095 petitions covering 202,151 workers who lost jobs that moved overseas. That’s only slightly less than the 2,170 petitions approved during the last four years of the Obama administration, which covered 209,735 workers.”_ Additionally, the TCJA included a provision that [changed how R&D deductions](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization) can be taken by American companies—rather than being deducted all at once, R&D costs must be amortized over 5 years for domestic spending and 15 years for foreign expenditures. The change threatens to disincentivize American companies to invest in innovation. “In a letter dated Nov. 4, 178 chief financial officers, primarily from large U.S. companies, including Ford Motor Co., Raytheon Technologies Corp., Lockheed Martin Corp. and Boeing Co., said the new rules create a competitive disadvantage for American companies and will lead to job losses and thwart innovation,” [an article in the Wall Street Journal explained](https://www-wsj-com.cdn.ampproject.org/c/s/www.wsj.com/amp/articles/u-s-cfos-ask-congress-to-repeal-change-to-r-d-tax-rules-11667845533). “They are asking Congress to move back to immediate deductibility before the end of the year.” The CFOs argue that the R&D capitalization change will threaten American business and foreign policy interests; they argue that a country that stops prioritizing innovation will fall behind on the global playing field. “On a level playing field, the U.S. can compete for R&D investment with any country in the world,” they wrote. “Unfortunately, the current playing field is tilted against the U.S., and every day this policy continues to be in place makes it harder for the U.S. to remain a global leader in innovation.” So, how does American R&D policy compare to competitors abroad? And what could we learn from their policies? [Ernst & Young’s (EY) 2022 Worldwide R&D Incentives Reference Guide](https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/tax/tax-guides/2022/ey-worldwide-r-and-d-incentives-guide-2022.pdf#page=136?download) offers a fascinating look. ![how does American R&D policy compare](/_blog-images/how-does-the-u-s-rd-policy-stack-up-with-the-world-img-1.jpeg) ### **Past and Future Economic Superpower** Since World War II, the United States has functioned as the world’s economic superpower. Prior to that, Great Britain held that mantle, and many believe that China may soon surpass the U.S. and claim that title in the future. It turns out that both the UK and China have committed to a much more robust R&D investment than the current American plan—the two countries have “super deductions” for R&D expenditures, allowing companies there to deduct more than 100% of R&D costs from their taxes. According to [EY’s Worldwide R&D Incentives Guide](https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/tax/tax-guides/2022/ey-worldwide-r-and-d-incentives-guide-2022.pdf#page=136?download), mainland China-based companies can deduct 175% of qualified R&D expenses for purposes; manufacturing enterprises began [deducting up to 200% of qualified R&D expenses starting in 2021](https://www.ey.com/en_gl/tax-guides/worldwide-r-and-d-incentives-reference-guide)! Until a new R&D policy was [announced this month](https://www.pinsentmasons.com/out-law/news/autumn-statement-2022-cutbacks-to-sme-rd-tax-credits-hugely-disappointing), the UK had a more favorable (or, perhaps, favourable) R&D credit for all businesses, and was especially invested in domestic small-to-medium-sized enterprises (SMEs). SMEs could claim an enhanced deduction of [230% of qualifying R&D spend](https://www.ey.com/en_gl/tax-guides/worldwide-r-and-d-incentives-reference-guide), as a deduction against taxpayers’ profits. If the deduction was more than the taxes, these SMEs could claim a cash credit at 14.5%, according to EY’s Worldwide R&D Incentives Guide. The tax code in the UK and China is a demonstration of the way each country works to incentivize R&D, but taxes only tell part of the story. The UK also has a large number of public grants meant to spur innovation. For example, ​​Innovate UK, which gets funding from the Department for Business, Energy & Industrial Strategy (BEIS), works to get academia and industry working towards UK-based patents and products and gives around £1 billion in direct grant funding every year for company-run R&D projects. The United States has a similar SMB R&D grant called the Small Business Innovation Research program, but most of the R&D spend is done by private industry. As the Wall Street Journal explains: “U.S. companies spent an estimated $532 billion on R&D in 2020, representing the lion’s share of what the U.S. as a country allocates to it, according to the National Center for Science and Engineering Statistics, a statistical government agency. A 2019 report from Big Four accounting firm Ernst & Young forecasts that U.S. R&D spending would be cut by $4.1 billion a year for five years because of the change and then by $10.1 billion annually for the subsequent half-decade.” The change in R&D capitalization threatens to accelerate that reduction in industrial R&D spending. Without the public grants to buoy American innovation, it could lead America to fall behind in the global race towards innovation. ### **India as a Case Study** India is a fascinating case study in R&D tax law and its impact. During its rapid push to liberalize and modernize the economy, the Indian government introduced an R&D tax credit to stimulate innovation. From 2001 to 2010, the R&D tax deductions were worth 150% of any capital and revenue R&D spend by firms in qualifying sectors. Starting in 2010, [the R&D tax deduction was increased to 200% and became available to every Indian company](https://www.sciencedirect.com/science/article/abs/pii/S0048733320302031). That new structure helped make India one of the most tax-friendly countries in the world in regards to R&D. (Note: in 2020-21, the deduction was reduced to 100% of R&D expenditure.) Researchers at three universities looked at the effects and found a substantial rise in R&D spending and patent applications in both India and in the US due to the changes: “We find that the R&D tax credit scheme and its 2010-11 reform spurred firm innovation,” they wrote in their [2021 journal article](https://www.sciencedirect.com/science/article/abs/pii/S0048733320302031) _R&D tax credit and innovation: Evidence from private firms in India_. “In response, such firms became more innovative and more productive.” The finding is intuitive, but it doesn’t make it any less striking when compared to the US policy toward R&D spending: lowering the cost of R&D through tax credits increases research spending, which leads to more domestic patents. ### **Learning from our Neighbor to the North** Canada has an interesting R&D policy that could be a valuable model for making R&D reform more politically palatable in the United States. The country offers a 15% federal R&D credit on all qualifying expenses. However, in addition, they offer [an enhanced credit rate of 35% for R&D spend](https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/tax/tax-guides/2022/ey-worldwide-r-and-d-incentives-guide-2022.pdf#page=56?download) by small Canadian-controlled private corporations (CCPC) on their first $3 million of R&D expenditures each year. That 35% credit is 100% refundable. The policy is specifically crafted to incentivize domestic small-and-medium-sized businesses run by Canadians. For a company to qualify as a CCPC, it must be privately owned and operated in Canada, and must not be controlled directly or indirectly by a nonresident or a public corporation. [The PATH Act, passed in 2015](https://www.neo.tax/blog/does-my-startup-qualify-for-the-r-d-tax-credit), is an example of an American law with a similar aim. It amended the R&D Credit so that it could count against payroll taxes rather than just income tax for pre-revenue and early-revenue startups. It meant that the credit could be claimed by the companies that were actually sparking much of American innovation over the last decade: technological startups. ### **The Way Forward** Clearly, as the letter-writing CFOs explained, the change to R&D Capitalization threatens to make America a country that disincentivizes domestic R&D. That could have stark consequences for the next generation of American business and American foreign policy. There seems to be bipartisan support for a change to the law, but it’s unclear if the political climate or economic moment will allow it to be prioritized. According to [a recent piece in Marketwatch](https://www.marketwatch.com/story/bipartisan-push-on-r-d-tax-break-looks-likely-to-flop-analysts-say-11669214964), the “bipartisan push on R&D tax break looks likely to flop.” [At Neo.Tax](https://www.neo.tax/), we hope lawmakers will look abroad and realize there is a way to incentivize innovation. Perhaps a “super deduction” is not possible at this moment, but a model that allows SMBs to continue to innovate should be a no-brainer. Either way, we’ll do our part to make sure startups maximize their R&D credits and minimize their R&D tax burden; that’s why we built Neo.Tax, and our mission hasn’t changed. --- ### What Do the Midterm Elections Mean for R&D Capitalization? URL: https://www.neo.tax/blog/what-do-the-midterm-elections-mean-for-rd-capitalization Published: 2022-11-16 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: Every pollster and cable news talkinghead predicted a Red Wave: the Republicans would take back the House and the Senate—the only question was by how... Every pollster and cable news talkinghead [predicted a Red Wave](https://www.politico.com/news/2022/11/09/2022-election-results-analysis-and-takeaways-00065878): the Republicans would take back the House and the Senate—the only question was by how wide a margin. But then, Election Day came, and the Democrats outperformed both expectations and the historical trends. Against all odds, they actually flipped one Senate seat and seem poised to lose the House just barely. The Red Wave turning into more of a Red Trickle has potentially massive implications on who leads the Republican Party moving forward, as well as on the future of the courts and the fate of many pieces of legislation. But, for our purposes, we want to understand what it could [mean for the changes to R&D Capitalization](https://www.neo.tax/blog/rd-capitalization-has-arrived-for-now) brought on by Donald Trump’s Tax Cuts and Jobs Act (TCJA). As a general rule, [it’s difficult to pass tax legislation in a divided Congress](https://www.pwc.com/us/en/library/forward-now-accounting-business-news/midterm-election-results-2022.html). If we assume that the current projections continue to hold, and that the Republicans will capture a small majority in the House, history tells us that R&D Capitalization may be here to stay for a couple more years. However, as the surprising midterm results have shown, this may be an ahistorical time. So, here are four scenarios and how they may affect R&D Capitalization rules. ### **Scenario #1: The Dems Hang On** If the Democrats somehow make a late push in the remaining races and retain a small majority in the House, they could repeal the R&D Capitalization rule by pairing it with an extension of the Child Tax Credit. [The Child Tax Credit](https://www.whitehouse.gov/child-tax-credit/) was a part of 2021’s American Rescue Plan, and it increased the per-child credit to $3,000 for kids under 6 and $3,600 for kids over 6 for qualifying families. There is bipartisan support for repealing R&D Capitalization and strong Progressive support for extending the Child Tax Credit, so [pairing the two is viewed as a compromise](https://thehill.com/opinion/finance/3684768-combine-the-child-tax-credit-and-rd-tax-credit-for-a-bipartisan-home-run/) to appease both business and progressive constituencies. But, with all indications pointing to Republicans taking the House, this scenario seems unlikely.* _*Update: Late on Wednesday afternoon, _[_the Republicans officially clinched the House_](https://www.cnbc.com/2022/11/16/midterm-house-elections-2022-republicans-take-control-of-the-house.html)_, taking Scenario #1 off the table._ ### **Scenario #2: A Bipartisan Compromise** The idea of bipartisan compromise feels like a fairy tale these days, but there is some signaling that the Republican Party may be moving away from its MAGA wing after the disastrous results of the midterms. If that’s the case, R&D Capitalization may be a place where bipartisanship wins out, because the center of both parties seems energized to repeal the Capitalization change. If this were the case, Capitalization rules could be rewritten during the next session, which would mean the tax effects would still hit SMBs hard for 2022. Still, any repeal of R&D Capitalization would be a huge boon for innovative startups, so any scenario that leads to the change should be celebrated as a win for American businesses. ### **Scenario #3: A Lame-Duck Hail Mary** If the Republican lead in the House holds—and all indications are that it will—a busy lame-duck session will be coming for the Democrats. [As CNN reported:](https://www.cnn.com/2022/11/14/politics/congress-lame-duck-agenda) “At a news conference Sunday, Senate Majority Leader Chuck Schumer warned of a busy lame-duck session, promising ‘heavy work’ and ‘long hours.’” It’s unclear if R&D Capitalization will be a priority during the frantic session, but the R&D Capitalization change paired with the Child Tax Credit is a real possibility. If that’s the case, the new law would go into effect before the next Congressional session begins, which would mean there is a small chance that the R&D Capitalization changes could be retroactively altered for 2022 before SMBs are hit with their massive tax bills. Here’s hoping that happens! ### **Scenario #4: Tax-pocalypse ** Unfortunately, Scenario #4 is an all-too-likely outcome. If the Republicans take back the House and do not take the midterm results as a signal that voters want more compromise from Washington, we may see the same butting of heads between both parties that has become the hallmark of the last decade. On Tuesday, [House Republicans voted Rep. Kevin McCarthy as the prospective next Speaker of the House](https://www.cnn.com/2022/11/15/politics/house-republican-vote-kevin-mccarthy) over a far-right challenge from Rep. Andy Biggs. It’s a sign that the Republicans are not fully embracing MAGA any longer, but it’s far from a clear indication of a new path. Instead, it leaves us in a holding pattern for a bit longer when it comes to R&D Capitalization. House Republicans may dig in their heels and refuse any compromise on R&D Capitalization that includes the Child Tax Credit; if Democrats do the same, the law may be on the books until one party controls both chambers of Congress. That very likely could happen in 2024, but with the speed in which the political winds have been changing, it leaves SMBs in limbo. Because there is still so much uncertainty around R&D Capitalization, savvy founders should prepare as if the R&D Capitalization rules are here to stay. [At Neo.Tax](https://www.neo.tax/), we have best-in-class software and [a team of experts who can help you prepare](https://meetings.hubspot.com/ben-eachus/neotax-optimizer). We continue to hope that Washington will come to their senses and overturn a rule that [experts have explained](https://www.washingtonpost.com/opinions/2022/09/15/democrats-child-tax-credit-deal/) as “a cynical [gimmick](https://www.crfb.org/blogs/final-tax-bill-could-end-costing-22-trillion).” Let’s hope lawmakers prioritize innovative American businesses over political wins. --- ### Inflation is Wreaking Havoc on Startups' Runway URL: https://www.neo.tax/blog/inflation-is-wreaking-havoc-on-startups-runway Published: 2022-11-09 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: We’ve heard the stresses of the current inflationary moment explained in a lot of ways—through the rise in gas prices, the cost of Thanksgiving dinner... We’ve heard the stresses of the current inflationary moment explained in a lot of ways—through [the rise in gas prices](https://www.cnbc.com/2022/06/10/inflation-continues-to-rise-gas-prices-up-nearly-50percent-since-last-year.html), [the cost of Thanksgiving dinner](https://www.businessinsider.com/thanksgiving-dinner-prices-turkey-potatoes-pie-inflation-2021-11), and [the exorbitant increase in mortgage rates](https://www.forbes.com/advisor/mortgages/mortgage-rates-and-inflation-rise/)—but a recent [LinkedIn post by Tomasz Tunguz](https://www.linkedin.com/pulse/losing-month-runway-every-year-inflation-tomasz-tunguz/?trackingId=aUBVCV7QCCq7X0543T4dyQ%3D%3D) framed it in a way every founder should pay attention to. Tunguz wrote: “8% annual inflation for a startup means losing a month of runway every year.” Startups take VC funding in order to extend the runway needed to turn an innovative idea into a valuable company. And as any founder knows, keeping your company lean allows you to use that runway to gain momentum and have your startup take flight. But the 8% inflation is wreaking havoc on the war chests of innovative startups. Not only has VC funding begun to dry up during this economic downturn, but the money startups have in their banks already is worth much less than last year. And as we’ve outlined before, a new change to the tax law went into effect this year which serves as a brutal one-two punch along with inflation for founders: [R&D Capitalization change](https://www.neo.tax/blog/rd-capitalization-has-arrived-for-now). As Tunguz explains in his post, in the mid-2000s, founders turned to riskier strategies to increase yield to combat the diminishment of their purchasing power. At that time, the method was Auction Rate Securities, which promised interest rates at a higher return than a savings account. Obviously, we all know how that story ended: the ARS market cratered in 2008, Lehman Brothers filed for bankruptcy, and the global economy collapsed. Clearly, the best solution to inflation is not risky investments for startups. Instead, founders should look to the existing tax code for a tool to fight runaway runway. Firstly, this means accepting the reality that tax season has become a year-round endeavor. [R&D Capitalization](https://www.neo.tax/blog/rd-capitalization-changes-why) means that money spent on R&D can no longer be deducted in full in Year 1; that means early-revenue companies can be in the red in reality, but appear in the black come tax day. The same company that once received valuable NOLs to carry forward may now be burdened with a giant tax bill—compounding the impact of inflation on startups’ runway. But this isn’t all doom and gloom. At Neo.Tax, we’re tax wonks obsessed with this type of minutia—we’re committed to helping founders continue to innovate despite inflation and the R&D Capitalization change. We want to [help founders plan strategically _throughout_ the year](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization), beginning at the time of hiring and taking location, profitability timing, and the type of R&D spend into account. The third item on that list —the type of R&D spend—is so important, because only the expenditures that pass the IRS’s 4-Part Test qualify for the R&D tax credit. The R&D tax credit was written into tax law as a means to [incentivize startups to create innovative products](https://www.neo.tax/blog/a-1981-tax-law-means-aws-costs-are-a-tax-credit) within the United States. And yet, the majority of startups miss out on claiming the money they’re owed every tax year. Now more than ever, it’s essential to find every way to extend runway, and claiming your R&D tax credit can return up to $250,000 per year to your startup’s coffers. [Find out how much your startup is owed](https://www.neo.tax/). It takes less than 30 minutes to file your credit using Neo.Tax. This is a belt-tightening moment, but we’re committed to helping founders have enough space to breathe as they turn their ideas into game-changing companies. --- ### R&D Capitalization is a Big Forkin' Deal—Megacorporations are Planning For It; So Should You URL: https://www.neo.tax/blog/rd-capitalization-is-a-big-forkin-deal Published: 2022-10-28 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: As Q3 earnings reports emerge, a new reality is coming into focus. Meta’s disappointing projections sent the social media giant’s share price to free... As Q3 earnings reports emerge, a new reality is coming into focus. Meta’s disappointing projections sent the social media giant’s [share price into a free fall](https://www.forbes.com/sites/siladityaray/2022/10/27/meta-shares-plummet-20-in-pre-market-after-q3-revenue-decline/), which captured most of the headlines. [Analysts focused](https://www.cnbc.com/2022/10/26/facebook-parent-meta-earnings-q3-2022.html) on runaway spending and the hit to their ad business, but there is another factor which Meta was already focused on as early as February 2022. In their [10-K](https://www.sec.gov/Archives/edgar/data/1326801/000132680122000018/fb-20211231.htm), they wrote: "If our stock price remains constant to the January 28, 2022 price, and absent U.S. tax legislation changes and other one-time events, we expect our effective tax rate for the full year 2022 to be similar to the effective tax rate for the full year 2021. **This includes the effects of the mandatory capitalization and amortization of research and development expenses starting in 2022, as required by the 2017 Tax Cuts and Jobs Act (Tax Act). The mandatory capitalization requirement increases our cash tax liabilities but also decreases our effective tax rate due to increasing the foreign-derived intangible income deduction."** We know now that the stock price has not remained constant, but it’s the second part of the excerpt that is essential to focus on for founders: one of the biggest companies on the planet has altered its tax planning based on the changes to R&D Capitalization. **Clearly, the change to how R&D spending can be deducted is a BIG FORKIN’ DEAL!** Former President Donald Trump’s Tax Cuts and Jobs Act of 2017 was sold as a giant tax cut, but it included [a five-year timebomb](https://www.neo.tax/blog/rd-capitalization-changes-why) that’s set to go off this year: the change to how R&D costs are deducted will vastly change the tax bills of the most innovative companies in America. Meta is far from the only public company that has earmarked the marked change: [Raytheon](https://investors.rtx.com/static-files/986802d4-540d-45d6-a6f8-d63ee453e807), [Lam Research](https://investor.lamresearch.com/static-files/1a4baf0d-bcf9-4784-b955-dfd3c8607d56), [Amazon](https://sec.report/Document/0001018724-22-000005/), and many others have mentioned the effect of the R&D capitalization change in their recent 10-Ks and earnings calls. As Lam Research explained in their August filing: “A provision enacted as part of the 2017 Tax Cuts & Jobs Act requires companies to capitalize research and experimental expenditures for tax purposes in tax years beginning after December 31, 2021 (our fiscal year 2023). **If this provision is not repealed or deferred, we expect our fiscal year 2023 cash tax payments to increase significantly compared to our fiscal year 2022.”** In Amazon’s 10-K, they wrote: “Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes, which will **delay the deductibility of these expenses and potentially increase the amount of cash taxes we pay." ** But most strikingly of all, was [a move by Raytheon this September](https://www.prnewswire.com/news-releases/raytheon-technologies-updates-its-free-cash-flow-outlook-for-the-capitalization-of-research-and-experimentation-for-tax-purposes-301623566.html). The aerospace and defense company **adjusted their free cash flow outlook from $6 billion all the way down to $4 billion because of the impact of the R&D capitalization change! **It’s a signal—a loud one!—that they don’t believe the R&D capitalization law will be amended before 2023. And clearly, the law staying as is vastly alters their tax reality. If some of the largest corporations are altering their earnings projections and warning their investors of this impending doom, it stands to reason that you should do the same. [The reality is: tax season has been expanded to a 12-month job](https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization). The innovative companies that start tax planning at the time of hiring and R&D spending will be the ones who best weather the storm and address the rising costs of R&D. At Neo.Tax, we have been studying the change and feel confident that we can help startups continue to build innovative technology without being burdened with an untenable tax bill. **These megacorporations have been planning for the change for months or years; if you’re just learning about it, the time to act is now. ** We built Neo.Tax to make sure innovative startups can extend their runway and build the products they’ve dreamed up. We’re tax wonks committed to making tax season as painless as possible. [So get in touch today!](https://meetings.hubspot.com/ben-eachus/neotax-optimizer) --- ### The Founder's Guide to R&D Capitalization URL: https://www.neo.tax/blog/the-founders-guide-to-rd-capitalization Published: 2022-10-14 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: Just like every other startup, we had our fingers crossed that Congress would come together to undo the new R&D Capitalization rules before they take... Just like every other startup, we had our fingers crossed that Congress would come together to undo the new R&D Capitalization rules before they take effect next tax year. But, unfortunately, it seems as though the new reality is here to stay (at least for now). We built Neo.Tax to make tax season valuable, rather than stressful, for innovative companies. Unfortunately, the new R&D Capitalization rules mean that a 12-month tax strategy has now become essential for founders. So, here’s our Founder’s Guide to R&D Capitalization. ![R&D Capitalization](/_blog-images/the-founders-guide-to-rd-capitalization-img-1.png) You can download a PDF copy of our cheatsheet [here](https://neo-tax.cdn.prismic.io/neo-tax/258a0364-197d-4109-920d-a2010ae6b138_rd-capitalization-cheatsheet.pdf). ## **Hiring** Let’s start with hiring, which any founder can tell you is what makes or breaks a startup. You’ve perfected your talent identification. You’ve honed your interview process. You’ve streamlined your onboarding. But unfortunately, the changes to how R&D spending is calculated means you now must be laser-focused on the _where_ as much as the _who_. Before these changes were written into law by Donald Trump in 2017 ([see our previous post for more info](https://www.neo.tax/blog/rd-capitalization-changes-why)), 100% of your R&D spend could be deducted from your income. If you brought in $1 mil in revenue and spent $2 mil on R&D to develop your innovative product, you would end the year with $1 mil in Net Operating Losses (NOLs). Now, you have to spread the R&D deduction over 5 or 15 years depending on if the spend is made in the United States or abroad—this is called amortization. Worse than that, only 6 months of the first year of R&D spend can be deducted. So, if the $2 mil you spent on R&D is domestic, you’ll only have $200K to deduct from your $1 mil. This new reality means that startups that once were pre-profit now look like post-profit companies during tax season—rather than accruing valuable NOLs as they prepare to become cash-flow positive, they’re being saddled with an expensive tax bill. **This is why you now need to start thinking about tax season at the hiring stage. ** ### [Try Our R&D Capitalization Scenario Spreadsheet](https://docs.google.com/spreadsheets/d/14_A0Nw3sUFEhBLcbrXqyJl7oeRJvxRHRXi94FvuyxZk/) In that first year, a $2 million R&D spend in the United States leads to a $200K deduction. But if that R&D spend happens overseas? Only $66,666.66 can be deducted from your $1 mil revenue. For tax purposes, that means a foreign employee working on R&D costs you 3 times as much. Because foreign spend needs to be amortized over 15 years, that means you’ll be feeling the costs every single tax season as well. By Year 2, a domestic R&D spend of $2 million will bring you $600k in deductions. If that spend is foreign? Year 2’s deduction will only be $200k. By Year 3, it’ll be $1m vs. $333,333.33. Year over year, as the spend grows, that 3x difference hurts more and more every April or October. Most experts agree that the change to R&D Capitalization was “a cynical [gimmick](https://www.crfb.org/blogs/final-tax-bill-could-end-costing-22-trillion) intended to make the bill _look_ cheaper for official budget scorekeeping purposes,” as [Washington Post columnist Catherine Rampell put it](https://www.washingtonpost.com/opinions/2022/09/15/democrats-child-tax-credit-deal/). But taking it at face value, the new law is ostensibly designed to promote hiring and spending within the United States. Until the law is amended, that is the reality for startups when it comes to R&D: unless you can save more than 3x, hiring abroad is probably not worth it. ## **Profitability** As we explained above, the changes to R&D Capitalization markedly affects the amount of NOLs that pre-profit companies will collect each year. Whereas before the change, a company that was $1m in the red would receive a $1m NOL going forward, now, due to amortization, that company might appear as though they are $800k in the black. That means, rather than $1m in NOLs, they’ll be burdened with a tax bill of $168k (21% of $800k). All of a sudden, being unprofitable is an expensive prospect for startups. With this new law, NOLs can be used to offset only 80% of taxable income, but those NOLs can be carried forward indefinitely. (Before the change, NOLs could offset 100% of taxable income, but would only carry forward for 20 years.) Thus, a pre-profit company could spend 5 years in the red, only to get hammered with a massive tax bill once they do become profitable, because they can no longer be entirely rescued by their NOLs. Historically, these [NOLs have functioned as a strategic tool for startups](https://www.thetaxadviser.com/issues/2019/feb/managing-corporate-state-net-operating-losses.html)—a skilled founder could plan ahead for that first year of profitability and apply their stockpile of NOLs to vastly decrease their tax burden for that year—and even some of the years that followed. In fact, NOLs have even been considered when valuing startups for acquisition. ![R&D Capitalization markedly](/_blog-images/the-founders-guide-to-rd-capitalization-img-2.jpeg) These new rules have also diluted a startup’s ability to _collect_ NOLs, especially if that startup spends heavily on R&D. Now, it has never been more important to focus on the _manner_ in which you spend on R&D—pay attention to the Four-Part Test and make sure your R&D spending can be claimed as an R&D credit! Because expenses that do not qualify for the R&D credit must be amortized (with only 1/10th being deductible in Year 1), R&D spending that does qualify is more than 10x as valuable to a pre-profit startup. So, what does that mean for your startup’s tax strategy? It means that it’ll be much harder to remain unprofitable in the view of the IRS. The upshot is that you may need to accelerate your gameplan: it’s exceedingly expensive to be in the red in reality, but in the black when it comes to your taxes. That can lead to a triple whammy, where you burn through your runway, pay an expensive tax bill, and fail to accrue any valuable NOLs. We’ve built Neo.Tax to give startups peace of mind when it comes to their taxes, and we’ve done this by maximizing R&D credits for our customers. The change to R&D Capitalization has made that more important than ever. We’re tax wonks committed to letting American startups be the most innovative in the world. So, let us help you continue to create incredible innovation and continue to do the work that inspired you to found your company in the first place. --- ### Neo.Tax Announces a Partnership with Bench URL: https://www.neo.tax/blog/neo-tax-and-bench-partner Published: 2022-10-10 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax is now the primary service provider for Bench's R&D tax credit clients! Our goal at Neo.Tax is to make sure every innovative startup receives the.. ## Neo.Tax is now the primary service provider for Bench's R&D tax credit clients! Our goal at Neo.Tax is to make sure every innovative startup receives the money they’re owed. More than $12 billion worth of R&D tax credits were claimed in 2014, but a significant portion of that money went to Fortune 500 companies. Luckily, in 2015, Congress expanded the R&D Tax Credit to early-stage startups, to encourage and incentivize the creation of new, valuable ideas in the United States. But still, far too many founders don’t know how valuable the credit can be — it’s worth $250,000 per year or 10% back on qualifying R&D expenses! [Bench](https://bench.co/partner/neo-tax/) is America’s largest professional bookkeeping service for small businesses. Whether you’re starting or growing a company, Bench is an essential service for getting your books in order and tax filing-ready. We can’t recommend their guide to startup accounting enough! [https://bench.co/blog/accounting/startup-accounting/](https://bench.co/blog/accounting/startup-accounting/) By partnering with Bench, Neo.Tax can help many more founders extend runway while continuing to invest in innovation. And better than that, it brings innovative technology and decades of expertise to startup taxes. Founders deserve better. As a Neo.Tax customer, Bench is providing a free trial month, plus 30% off bookkeeping for 3 months. With Bench & Neo.Tax, tax season can change from a liability into an asset. --- ### R&D Capitalization Has Arrived (For Now)—Here's What You Need To Know URL: https://www.neo.tax/blog/rd-capitalization-has-arrived-for-now Published: 2022-10-04 Author: Ahmad Ibrahim Category: Industry News Summary: You didn’t found your company because you always dreamed of navigating a constantly shifting tax landscape—but that doesn’t mean you get to ignore it... You didn’t found your company because you always dreamed of navigating a constantly shifting tax landscape—but that doesn’t mean you get to ignore it. So, here’s an R&D Capitalization cheatsheet from your tax wonk friends at Neo.Tax.… ## **So, uh, what do Amortization and Capitalization Mean?** Fair question! Capitalization can be understood as a limitation on the timing in which you can take a deduction. There are two different subgroups of capitalization: depreciation (for physical assets) and amortization (for intangible assets). For this post, we only need to worry about amortization. In its simplest form, a deduction can be thought of as an expense that is subtracted from taxable income. So, if you made $10 mil in revenue and spent $5 mil on R&D, deducting that amount would make your taxable income $5 mil ($10,000,000 minus $5,000,000). But under the [new R&D capitalization rules](https://www.neo.tax/blog/rd-capitalization-changes-why), the amendment means the deduction must be amortized, or in simpler terms, spread over 5 or 15 years, depending if the expense is domestic or international, respectively. That means only one-fifth or one-fifteenth of the R&D expenses can be subtracted from the taxable income that first year. So, if your company’s R&D occurred in the States, the equation becomes $10 mil minus $1 mil; if it’s done abroad, the equation becomes $10 mil minus $333,333.33. Eventually, over the 5 or 15 years, you will technically be able to deduct the same amount as before, but this obviously increases your tax bill in the near term by quite a bit. ![Amortization and Capitalization Mean](/_blog-images/rd-capitalization-has-arrived-for-now-img-1.jpeg) Unfortunately, the amortization amendment hits pre-revenue or early-revenue startups especially hard. Up until now, pre-profit companies used to stack Net Operating Loss deductions up year over year. But the new law changes that, too: from now on, you can only use **80%** of your NOLs to offset your taxable income. And, because of the amortization changes to R&D, the amount of NOLs you’re able to claim in those pre-revenue or early-revenue years is very likely to plummet. (More on this in a moment.) So, let’s say you bring in $5 million in revenue and spend $10 million in R&D expenses. Only $2 million can be deducted in Year 1, which means you’re paying taxes on $3 million, when you’re actually $5 million in the red. Your tax bill is higher, more of your R&D tax credit goes towards offsetting that bill, and you’ve collected $0 NOL for the moment you actually do become profitable. So, you can see how this amendment significantly disincentivizes the companies doing the most innovative work in the United States from spending on R&D. ## **Cool, cool, cool—but what do you mean by NOLs?** An NOL or Net Operating Loss means how much in the red you are in a given tax year. So, if your startup is pre-revenue or early-revenue, every dollar you spend on payroll, marketing, R&D, or rent over the amount brought in via sales would be counted as an NOL. NOLs are a valuable deferred tax asset for startups because they can be rolled over year to year and eventually used to offset taxable income when you become profitable. For example, if you were in the red by $400,000 in Year 1, $250,000 in Year 2, $150,000 in Year 3, before making $1,000,000 in profit in Year 4, you could subtract $800,000 from your taxable income. Thus, you’d pay the 21% corporate tax rate on $200,000 rather than on $1,000,000—that’s $42,000 rather than $210,000 in taxes. But, the R&D Capitalization amendment will greatly reduce the amount of NOLs for startups. Why? Good question! When startups have to amortize their R&D expenses, that means the amount they can deduct from income in that first year is only one-fifth or one-fifteenth (depending on if they’re spent in the States or abroad) of the total amount they spend. So, if you were $400,000 in the red in Year 1 and $100,000 of that was United States-based R&D spend, only $20,000 could be counted in Year 1. The result is $80,000 less in Year 1 NOLs. By the time you are able to deduct all the expenses, chances are you’ll be profitable—that means a once-valuable tool for pre-revenue or early-revenue startups has been [kneecapped by the new law](https://www.forbes.com/sites/annemarieknott/2022/01/20/this-years-shift-to-capitalization-may-reduce-rd-investment/?sh=3792b88065efhttps://). And if your R&D spend is on foreign contractors? Good luck taking advantage of the majority of those NOLs! ## **Okay, so how does this affect the R&D Tax Credit?** Well, here’s the reality: R&D expenses that qualify for the R&D Tax Credit have never been more valuable in this brave new world. That’s because those R&D costs can continue to be claimed in the current tax year against income taxes or payroll taxes—not the taxable income. In other words, your R&D credit gets applied _after _you apply the corporate tax rate of 21%, not before. This means that your R&D credit is roughly 6x more valuable than an NOL. (Remember, only 80% of the NOL can now be applied.) So the key now is to maximize your R&D expenditures that qualify (certain US-Based R&D expenditures that meet the Four-Part Test: Permitted Purpose; Elimination of Uncertainty; Process of Experimentation; Technological in Nature) while minimizing those that don’t. [As we’ve discussed before](https://www.neo.tax/blog/a-1981-tax-law-means-aws-costs-are-a-tax-credit), the R&D Credit was passed during the Reagan Administration as part of the Economic Recovery Tax Act of 1981 (ERTA). The most relevant change for tech companies was the creation of the “Credit For Increasing Research Activities” (R&D Tax Credit), which amended IRC §41 to allow qualified expenses to be claimed as a tax credit. The law was drafted to incentivize innovation within the United States, and the amendment allowed companies to claim 20% of expenses like salaries, research expenses, and some other expenses as credits. For the first three decades, the R&D credit could only be claimed as a dollar-for-dollar offset of the federal income tax, which meant it was only being used by profitable companies. (A majority was claimed by Fortune 500 corporations.) But that meant that the most innovative companies in the country—tech startups—weren’t able to file for the credit. That changed with the passage of the Protecting Americans from Tax Hikes Act (PATH Act) in 2015: now, pre-revenue startups can claim the R&D credit against payroll taxes for up to 5 years. In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which did not affect IRC §41. It did, however, amend IRC §174, which more broadly covers all R&D expenses (both those that pass the 4-part test and those that do not). Because of that amendment, it has now become extremely important to maximize qualified R&D expenditures while minimizing those that don’t pass the Four-Part Test. The ones that don’t will have to be deducted over 5 or 15 years and won’t be eligible for a tax credit—which we now understand means a massive accounting headache and an extremely painful tax bill. The graph is essential to memorize in this new R&D tax reality. Now, say it with us: “IRC §41 expenses good; IRC §174 bad.” ![Capitalization Implication Bracket](/_blog-images/rd-capitalization-has-arrived-for-now-img-2.jpeg) ## **Congratulations, you’re officially in the top R&D Tax Capitalization Implication Bracket!** So, now you know what amortization means, the new implications when it comes to NOLs, and the difference between IRC §41 and IRC §174. I hope you’ve enjoyed R&D Tax Capitalization 101. The biggest takeaway is that this change hurts startups, but savvy founders can still make the R&D Tax Credit work for them—so long as they’re mindful of how their R&D spend fits into a holistic tax strategy. That strategy has to take into account several factors: NOLs, qualified vs. non-qualified R&D expenses, and your business’s future plans for revenue and profitability. So, be mindful of where your R&D spending is happening. And, hey, if you’re looking to get the most money back and spend the least time doing it, we might just know of an automated R&D tax service that’s right for you! 😉 --- ### “Why” Are R&D Taxes Changing? New Capitalization Rules Hurt Innovative Startups Most Of All URL: https://www.neo.tax/blog/rd-capitalization-changes-why Published: 2022-09-27 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: Tax law is rarely popular, especially with both sides of the aisle. But the R&D tax credit has done the unthinkable: change the tax code to appeal to... Tax law is rarely popular, especially with both sides of the aisle. But the R&D tax credit has done the unthinkable: change the tax code to appeal to everyone, by incentivizing innovation within the United States. Every 1-2 years since it was created in 1981, the R&D tax credit has been extended with a congressional rubber stamp. And, in 2015, with the passage of the Protecting Americans from Tax Hikes (PATH Act), the R&D credit became permanent law. But then, just two years later, Donald Trump signed into law his landmark [Tax Cuts and Jobs Act](https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/) (TCJA). The Congressional Budget Office—tasked with nonpartisan analysis of the TCJA, which included a new single corporate tax rate of 21% (down from 35%)—found that the new tax code would vastly increase the national deficit between 2018 and 2028. So in an effort to recoup some of those lost taxes, Congress modified the TCJA to include a massive change to the way R&D expenses are treated, which goes into place next year. ​​And, unfortunately, this change is very, very bad for startups. (Even after this amendment, the CBO still found that the TCJA would increase the deficit by nearly $1.9 trillion.) As [Washington Post columnist Catherine Rampell explained](https://www.washingtonpost.com/opinions/2022/09/15/democrats-child-tax-credit-deal/): “To help make their corporate rate cuts as large as possible, Republicans included [some measures](https://www.cbpp.org/research/federal-tax/unfinished-business-from-the-2017-tax-law) that would ([ostensibly](https://www.crfb.org/blogs/new-senate-tax-bill-hides-over-500-billion-gimmicks)) raise a little bit of money to offset the cost. Among these supposed pay-fors was this change to the tax treatment of R&D spending.” That change is an amendment to IRC §174: starting next year, Research and Experimental (R&E) expenditures incurred or paid for tax years beginning after December 31, 2021, will no longer be deductible for tax purposes. Instead, American businesses investing in R&D will have to capitalize and amortize expenditures over a five-year period for research conducted within the U.S. or over 15 years for research conducted abroad. **Capitalization and amortization effectively slow down the deductions for R&D (and _REALLLLY_ slows them down for foreign research), which means that when the rule first goes into effect, companies will have fewer deductions and more taxable income in earlier years.** Theoretically, they will eventually be able to deduct all costs, but why slow this process down? ## **A Budgeting Trick** Why? It seems likely it was a budgeting trick. The 2022 R&D capitalization rule was a (wildly unpopular) part of the law that was passed to cut corporate tax rates, because when the Congressional Budget Office "scores" legislation, they look at the budget impact over 10 years. Thus, the giant deficit created by dropping the corporate tax rate to 21% was partially masked by the increased revenues from this 2022 capitalization provision. Tax cuts [appeared to _only _create a $1.4 trillion deficit](https://www.cnn.com/2017/11/27/politics/cbo-score-senate-tax), when in fact it would be much larger without the R&D capitalization provision. “The presumption at the time was that these provisions might never materialize because future Congresses would step in and reverse them first. One of the architects of that 2017 GOP tax overhaul, Rep. Kevin Brady (R-Tex.), even [publicly](https://kevinbrady.house.gov/news/documentsingle.aspx?DocumentID=404947) and [repeatedly](https://rollcall.com/2022/03/02/major-corporations-make-last-ditch-push-for-rd-tax-break/) endorsed proposals to undo his own handiwork,” Rampell wrote. “In other words, the R&D change was a cynical [gimmick](https://www.crfb.org/blogs/final-tax-bill-could-end-costing-22-trillion) intended to make the bill _look_ cheaper for official budget scorekeeping purposes—but that leading Republicans never actually expected, or wanted, to happen. **So, what does that mean for your startup?** ![A Budgeting Trick](/_blog-images/rd-capitalization-changes-why-img-1.jpeg) Well, let’s do the math.** **If you made $1m in revenue but spent $2m building software inside the United States, you can’t just subtract $2m from $1m and show the IRS you’re $1m in the red. Instead, you must spread that $2m out over 5 years, which would be $400k per year. Now, the math becomes $1m - $400k, meaning your taxable income looks more like $600k. Even at the lowered corporate income tax rate of 21%, that’s a $126k tax bill _for a company that did not make any profit_. If your R&D expenses were incurred outside the States, the bill is even higher. **Clearly, this amendment to IRC §174 hurts innovation by American companies—and it hurts innovative startups most of all.** So what happened? It turns out the history and politics of it all is… everything. ## **R&D as we knew it is history!** It is always best to start at the beginning, so let us begin at the very start. The earliest known taxes were levied in Mesopotamia 4,500 years ago.… Just kidding. Let’s jump forward a few millennia. As far as deductions go, the 1933 Supreme Court ruling in _Welch v. Helvering_ created the framework that only expenses that were [both “ordinary” _and_ “necessary” could be deducted](https://www.law.cornell.edu/uscode/text/26/162)—eventually, IRC Section 174 allowed taxpayers to deduct R&D costs (like Section 162 expenses), or capitalize and amortize them over a period of at least 5 years. It took fifty years before the tax code changed again, this time dramatically, when Ronald Reagan passed the Economic Recovery Tax Act of 1981 (ERTA). The most relevant change for tech companies was the creation of the “Credit For Increasing Research Activities (R&D Tax Credit).” IRC §41 allowed companies a credit for certain US-Based R&D expenditures that met a 4-part test (Permitted Purpose; Elimination of Uncertainty; Process of Experimentation; Technological in Nature) could be claimed as a credit. The law, built to incentivize innovation within the United States, allowed companies to claim expenses like salaries, research expenses, and leased time on the mainframe computers popular at the time as credits. [Yup! Congress knew AWS was gonna happen way back in 1981! ;)](https://www.neo.tax/blog/a-1981-tax-law-means-aws-costs-are-a-tax-credit) The credit was originally intended to be a temporary incentive to boost US-based R&D and was set to expire after a couple of years. But it was so popular that Congress kept reinstating it every couple of years—for almost four decades! It wasn’t until the PATH Act of 2015 that it was finally codified as a permanent fixture in the tax code. At the same time that Congress was codifying the credit, they decided to tackle another issue that had arisen: the R&D credit could only be claimed as a dollar-for-dollar offset of the federal income tax, which meant it was only being used by profitable companies. **Congress understood that, in the Age of Tech Startups, many of the most innovative companies in the country were being left out.** So, in 2015, as part of the PATH Act, there was a provision that allowed pre-profit startups to claim the R&D credit against payroll taxes for up to 5 years. In the years since, the tax credits allocated for innovation within America began to go to more than just the country’s largest companies. More and more startups have begun to understand how to access the money they were owed, which promises to further incentivize innovative companies to create novel and disruptive technology in America. **But then, the TCJA with its five-year ticking time bomb came due, and it now threatens to make research and development both expensive and an accounting headache going forward.** The change was written to be implemented five years in the future—that’s another clue that lawmakers expected it to be overturned before it ever took effect. What congressperson would want to pass a law that is guaranteed to be deeply unpopular with small business owners? But no one could have predicted the many unexpected factors that made rewriting an unfavorable R&D tax bylaw infeasible these last few years: a global pandemic, a possible recession, and runaway inflation, to name a few…. So, for now, the law remains, though there is bipartisan support to amend IRC §174 again to make it more favorable to innovative companies in the United States. ## **The Five-Year Time Bomb** This new rule disincentivizes R&D by all U.S. companies, but it especially damages pre-revenue and early-stage startups. Because pre-revenue companies have fewer deductions available, they’ll be forced to utilize more of the Net Operation Losses (NOLs) sooner, which will put them at a disadvantage financially when they do eventually turn a profit. We’ll dive deeper into the ramification of that aspect in a future post. ![The Five-Year Time Bomb](/_blog-images/rd-capitalization-changes-why-img-2.jpeg) In the rest of our series on R&D Capitalization, we’ll go deep into the Who, What, and Where of it all. We hope you now understand the Why. It’s frustrating for those of us committed to serving the most innovative companies in America that we’ve found ourselves here, but we’re doing our best to bring clarity and solutions to startup founders. Winston Churchill is credited with writing: “Those that fail to learn from history are doomed to repeat it.” So, now that we’ve done the history section, we’ll try our own hand at a quotation: “Those who don’t learn about capitalization are doomed to lose the money they’re owed.” And no one wants that… --- ### Why These Tax Changes? It's All Politics URL: https://www.neo.tax/blog/why-these-tax-changes-its-all-politics Published: 2022-09-15 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: when congress extended r&d credits to startups in 2016, a deal had to be struck. a bargain that had to counterbalance the giving of money to startups... when congress extended r&d credits to startups in 2016, a deal had to be struck. a bargain that had to counterbalance the _giving_ of money to startups, with some way of _recouping_ that money (or more) via taxes. “ok fine, we’ll give startups up to $250k for their investments in product development, but then we won’t let them deduct all those expenses from revenue in the first year – they’ll need to spread them out (aka capitalize them) over the course of five years.” to be super honest, this is fairly consistent with tax principles – despite being pretty shitty. taxes follow a principle of revenues and expenses mapping to their respective timelines. the software you build _this year_ will likely continue to be sold well beyond _this year_. and just like the upfront ARR you collect needs to be recognized, or spread out, over the months that you actually deliver that software to your customers, the costs incurred to develop that software follow the same logic. more interesting than the bargain they struck in this particular case, is the fact that it gives us insight into how the sausage is made. as it turns out the history and politics of it all… is everything. --- ### New Tax Changes are Double-Edged for Startups URL: https://www.neo.tax/blog/taxldr-new-tax-changes-are-double-edged-for-startups Published: 2022-09-14 Author: Neo.Tax Category: R&D Tax Credits Summary: we’ll give you the bad news first startups can no longer deduct (aka subtract) r&d expenses from revenue. for software or product development costs, you... ## **we’ll give you the bad news first** **startups can no longer deduct (aka subtract) r&d expenses from revenue. **for software or product development costs, you now have to capitalize (aka spread them out) over 5 years if they’re domestic, and over 15 years if they’re foreign (aka offshore). because of something called the ‘mid-year convention’, year 1 counts as only half of a year. so functionally, you can only deduct 10% (not 20%) of domestic r&d expenses — and only 3.33% (not 6.66%) of foreign expenses — in the first year, 2022. this creates a substantially larger “computed” taxable income → an actual tax liability. you may be thinking “whatever i’ve got NOLs” — but even those have been neutered: **you can now only use NOLs to offset up to 80% of your “computed” taxable income. **“hey you have a big tax liability now — and oh you can’t really use your NOLs to wipe it out.” all the while, this added tax burden means it’ll become harder to stockpile NOLs like before. it’s a combo fucking judo move if i’ve ever seen one. ## **now the good news: you can solve this with e2e tax strategy** all of a sudden, you can no longer separate NOLs and R&D in your thinking. **your startup’s revenues and expenses, NOLs, and the new tax code need to be baked together. even future headcount planning and revenue projections roll into your complete tax strategy.** the semi-good news is that your startup likely already has a very healthy reserve of NOLs, so you'd only really have to worry about covering the remaining 20% with r&d credits. aka optimize the allocation of r&d expenses such that whatever is capitalized — ironically the same (ish) type of expense used to generate an r&d credit — creates a taxable income _just big enough_ to have 80% of it wiped out by NOLs. the remainder will get taken care of by the income tax r&d credits. plus, if you model out + expect future years to have computed taxable income, you can be sure to build up a healthy enough reserve of deferred tax assets. you'd only need 1/5 the tax credits since they'd offset the tax _burden_ itself, as opposed to the NOLs which only offset computed taxable _income_. ## **why startups can’t _just_ do r&d credits anymore** apart from often being inaccurate, this method presents a new problem under the new rules: the well-known strategy of ‘throwing in the kitchen sink’ to maximize your r&d credit will create a larger tax bill in its wake than the credit it alleges to claim for startups. **instead, startups need to start planning and optimizing their tax strategy,** **while optimizing — not maximizing — their r&d tax credit along the way.** --- ### The Startup's Guide To Payroll URL: https://www.neo.tax/blog/the-startups-guide-to-payroll Published: 2022-07-27 Author: Neo.Tax Category: R&D Tax Credits Summary: 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... **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: - Extend your runway - Help continue necessary R&D - Reduce burn Have no fear, Neo. Tax is here! Check out our guide to setting up your payroll taxes as a startup or new business. ## Why not Independent Contractors? 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. ## Where To Start? 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](https://gusto.com/), 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](https://www.neo.tax/blog/what-to-look-for-in-your-rd-tax-credit-software) about what to look for. More often than not, setting up payroll boils down to these steps: 1. Gather necessary documents like your company’s EIN, state or local Business ID, and your employee’s onboarding information, as well as their employee classification–if they’re part-time or full-time, etc.; 2. Choose your payment schedule or pay period; 3. And decide on a payroll system or provider. ## Resources & Tips 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: - [Form SS-8](https://www.irs.gov/pub/irs-pdf/fss8.pdf): If you’re wondering how to classify employees and/or determine worker status for Federal Employment Taxes and Income Tax Withholding, this is the form. - [Form I-9](https://www.jobs.irs.gov/sites/default/files/wysiwyg-uploads/files/IRSDownloads/I-9EmploymentEligibilityVerification.pdf): Your go-to form for employment eligibility verification. - [Form W-4](https://www.irs.gov/forms-pubs/about-form-w-4): You’re probably familiar with this one. It’s your employee’s withholding certificate. - [Form W-2](https://www.irs.gov/forms-pubs/about-form-w-2): Another familiar one is this–the wage and tax statement. - [Form W-9](https://www.irs.gov/pub/irs-pdf/fw9.pdf): If you’re working with independent contractors, then you definitely know this one. This is your request for taxpayer identification number and certification. - [Form 941](https://www.irs.gov/pub/irs-pdf/f941.pdf): this form is the employer’s quarterly federal tax return. - [Form 940](https://www.irs.gov/pub/irs-pdf/f940.pdf): and last, but certainly not least, the employer’s annual Federal Unemployment (FUTA) Tax Return. 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: - A trusted accountant or accounting firm, - Accurate accounting software, - Payroll software that integrates seamlessly with your accounting software, - And, if you can swing it, a human resources manager, COO, or business partner. Here are a few more tips for payroll: - Make sure you pay close attention to your records and fill every form out correctly. - Always, always, always file your payroll taxes on time. This not only ensures that you pay employees on time every time, but also helps avoid overpayments or any other mistakes. Here are some [deadlines](https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-due-dates) to mark in your calendar. - Don’t forget to keep your records organized and remember to keep former employees' records for 3 years after separation from the company. 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! --- ### Founder Series: Stephen Yarbrough is Leading by Example URL: https://www.neo.tax/blog/founder-series-stephen-yarbrough Published: 2022-07-25 Author: Neo.Tax Category: Education & Resources Summary: By Neo.Tax Team 5 min read Stephen Yarbrough is the epitome of a founder who is walking the walk. And if you’re asking, can he talk the talk? Stephen... **By Neo.Tax Team ** **5 min read ** Stephen Yarbrough is the epitome of a founder who is walking the walk. And if you’re asking, can he talk the talk? Stephen is a veteran of The Big 4 and the IRS… enough said. Despite his resume, what really stands out most about him is his energetic laugh that makes you feel ‌you’re talking to an old college friend–even through the screen during a zoom call. An openly out and proud gay man, Yarbrough is taking a “lead by example” approach to visibility, representation, and inclusion. As one of three ethnically and racially diverse founders of Neo.Tax, a tax automation software startup, Stephen believes that senior leadership’s responsibility lies in setting an example and following through. “It's much more empowering [to say] during work conversations, ‘hey, I'm gonna be out of the office for pride, or telling stories and being open about when you got married to your husband or same-sex partner.’ I think that level of openness actually has a bigger impact when it comes from senior leadership. It’s important for senior leadership to be open and comfortable.” By the same token, Yarbrough acknowledges ‌it isn’t always that easy and that the choice of whether to be out at work shows a bigger cultural shift that needs to happen. The reality of what employees have to go through takes Stephen back to a time when discrimination was all too real for him while working for a Big Four accounting firm–back when it was still called the Big 6. #### “I was the only intern from my school that didn't get a full-time hire offer on the last day of our internship and it was very clear it was because I was gay. They said it was because I didn't know my target audience, ‘conservative accountants.’ They kept having events where they would ask us to bring our boyfriends or girlfriends, and I brought my boyfriend. And that was not cool back in 1997.” Fast forward to 2022 and 40% of LGBTQIA employees stated they had witnessed homophobic harassment working at tech companies. A recent ICA & CalCPA [study](https://www.imanet.org/-/media/e0cec7e7857f459280a3f55a6566e277.ashx?la=en) cited a lack of fair treatment, diversity, and inclusion were key reasons LGBTQIA+ identifying professionals are leaving the accounting profession entirely. Visibility and cultural shifts go hand in hand. It’s not enough to see an underrepresented person in a position of power and leadership, it’s equally important to see shifts happen within the boots-on-the-ground, day-to-day, watercooler culture that is fundamental to everyday life in a workplace, be it remote or in the office. And for Stephen, affecting positive change in the Fintech space that Neo.Tax occupies is what motivates him. “I think leading by example is important. But I also recognize that organizations have difficulty doing this. You can't just say find the gay partner [at a firm] and push them out there to be open. When you have senior leadership that is open, it makes it easier for everybody else. And that translates into the culture here [at Neo.Tax].” That ease around company culture and relaxed approach to inclusion are apparent in the interactions between employees, founders, and senior leadership at Neo.Tax. And especially with matters of the heart, love is love. “One of the interesting conversations ‌I had with Ibrahim,” another co-founder of Neo.Tax, “was about a second date I was going on with a Muslim man. I wanted to know which meats to avoid when picking a restaurant. So he gave me some advice. It didn’t matter who I was dating.” Walking the walking is not always easy. And in Stephen Yarbrough’s case, it has meant moving across the country to find an environment where he could be himself and still work in what many consider a “conservative” profession. But with the power of visibility, inclusion, and respect in the workplace, it can mean that walking the walk, or rather putting action behind the words, makes it less of a singular, individual path and more of a collective journey. **Advice for founders?** Take a top-down approach and remember being inclusive doesn’t have to be showy, as long as companies put inclusivity into action. --- ### 5 Common Misconceptions About The R&D Tax Credit URL: https://www.neo.tax/blog/5-common-misconceptions-about-the-rd-tax-credit Published: 2022-07-21 Author: Neo.Tax Category: R&D Tax Credits Summary: By Neo.Tax Team 5 min read What's holding you back from filing for R&D Tax Credits? With all the misconceptions around research and development tax... **By Neo.Tax Team ** **5 min read** What's holding you back from filing for R&D Tax Credits? With all the misconceptions around research and development tax credits, it’s no wonder that most small to mid-sized business owners don’t file–and it definitely doesn’t help how complicated it seems the IRS makes almost everything. Before you completely write off the R&D credit, here are some common misconceptions about R&D Tax Credit that we had to set true. ## Misconceptions #1: Scientific advantages or breakthrough medical technology are the only ‌businesses that qualify for R&D Tax Credits Changes to the R&D Tax Credit expanded what types of companies qualify. These changes mean not only lab sciences are qualified, but also applied sciences. Applied sciences include areas like: - engineering, - computer science, - technology, - agricultural science and, - food science, to name a few. Don’t feel left out. Whether your company is in manufacturing, technology, agriculture, or even hospitality and catering, you could qualify for R&D Tax Credits. Still skeptical? Here’s a quick and easy quiz to help you figure out if your business is sitting on a sweet, sweet R&D credit [here](https://app.neo.tax/eligibility-check?_ga=2.17576189.51955614.1655822859-1220665556.1655822859). ## Misconceptions #2: Only companies with substantial profits and tax liability can claim R&D Tax Credits Wrong again! The 2015 PATH Act, also known as the Protecting Americans From Tax Hikes Act, cemented R&D Tax Credits as a permanent part of the tax code. PATH also created a provision for startups and small businesses. This provision allows small businesses to elect to use their R&D credit toward payroll taxes and claim up to $250,000 a year for up to 5 years of R&D expenses. Not to mention qualified small businesses can carry forward their credit for payroll tax deductions to use in another year. For SMBs, carry forward refers to the application of tax credits to future tax years. Thank you PATH Act. ## Misconceptions #3: Any small to mid-sized business that claims R&D credits will face an audit Just when you thought the IRS was picking on the little guy, here we come to bust that myth! Yes, there is a chance that claiming your R&D Tax Credit might trigger an audit. However, claiming your R&D credit does not mean your company **_will_** get audited–and most definitely should not stop you from claiming your R&D credit. When you're filing for your R&D credit, make sure your business is using a trustworthy source to prepare your credit, such as complaint automated software, that provides you with the almighty study to accompany your Form 6765. This study will outline all your qualified R&D expenses to make sure you’re covered in case of an audit. **Hot Tip: When you decide on software or an accountant for your R&D credit preparation, always ask if they will provide a study. ** Don’t know what to look for in R&D software? Check out our [post](https://www.neo.tax/blog/what-to-look-for-in-your-rd-tax-credit-software) to help you find the best R&D software for your company. ## Misconceptions #4: If you haven’t been in business long enough, you can’t claim R&D credits No…not quite. Once again, we have to give it up for the PATH Act. The Act ushered in a new era for businesses by extending the credit to startups and qualified small businesses. BPA (Before the PATH Act), businesses could only claim the credit if they were profitable. Now, companies with under $5 million dollars of revenue can claim their R&D credit and apply the credit toward payroll taxes for employees who were integral to the first 5 years of research and development projects. **Hot Tip: The only requirement is that you have payroll tax ‌you are offsetting. If you are a startup using all consultants and they aren't on your books, then you are missing out. ** ## Misconceptions #5: Your industry disqualifies your business from R&D credits Yeah, not the case. If your business is conducting qualified research and development, then it really doesn't matter which industry your business is in, as long as your projects and expenses qualify for the R&D credit. The payroll-tax offset allows companies to receive a benefit for research activities, even if they aren’t profitable. In order to be eligible for the credit, there are a few qualifications that companies must meet, like: - gross receipts for five years or fewer, and yes, interest income counts toward gross receipts; - less than $5 million in gross receipts in the year you’re electing to use the credit; - qualifying research activities and expenditures and, - payroll-tax liability. **Hot Tip: avoid the dreaded audit at all costs by making sure your company’s activities are qualified for the R&D Tax Credit using the 4-part **[**test**](https://www.irs.gov/businesses/audit-techniques-guide-credit-for-increasing-research-activities-i-e-research-tax-credit-irc-41-qualified-research-activities)**. ** Unsure if your startup qualifies? Here is a simple [guide](https://www.neo.tax/blog/does-my-startup-qualify-for-the-r-d-tax-credit) to figuring out if your company qualifies. Changes to R&D Tax Credits expanded the industries that can claim the credit. By including applied sciences like those used in manufacturing, agriculture, and technology instead of making the credit only available to strictly lab sciences–more companies than ever could be eligible for the R&D credit. Keep up with all things taxes, accounting, and tech by subscribing to our newsletter. --- ### 3 Ways Automated Tax Filing Could Help The Average American URL: https://www.neo.tax/blog/3-ways-automated-tax-filing-could-help-the-average Published: 2022-07-20 Author: Neo.Tax Category: R&D Tax Credits Summary: By Neo.Tax Team 5 min read A recent study from ​​the U.S. Department of the Treasury, the Minneapolis Federal Reserve, and Dartmouth College found the... **By Neo.Tax Team ** **5 min read** A recent study from ​​the U.S. Department of the Treasury, the Minneapolis Federal Reserve, and Dartmouth College found the IRS can automate between 62 million and 73 million tax returns–which represents over 45% of US taxpayers who would be eligible for auto-filing. A survey of 344,000 individual returns in 2019 found that pre-populated returns for low-to-moderate earning taxpayers would not only be accurate, but would also save taxpayers time and money when filing every year. Even though accuracy decreases as the number of itemized deductions increases, [90%](https://www.irs.gov/statistics/soi-tax-stats-tax-stats-at-a-glance) of Americans qualify for standard deductions. That said, let’s explore the other ways automated tax returns could help the average American. ## **1. Faster, Easier, Better ** An automated tax system for taxpayers claiming the standard deductions means faster tax processes for everyone. Huzzah! Automation would ease the burden on the IRS as they continue to deal with pandemic-related backlogs and slowdowns. In countries where automated taxes filings are already standard practice, taxpayers can file in as little as 5 minutes–as is common practice ‌in Estonia. In Sweden, where taxpayers receive a text message to review and approve their tax filing, the process is even faster. Not to mention the economic benefits for the 12 million people who currently are not filing taxes because of a lack of access to resources necessary for filing, for instance. An automated filing could mean money in the pockets of people who had never or rarely filed previously. Who knew working smarter could mean more money in your pocket? ## **2. Stress Be Gone ** Most Americans cite making a mistake and not getting their full refund as major stressors when filing their taxes. Not to mention the financial burden taxpayers face having to pay preparers when, in reality, a standard deduction and automated filing could suffice. Tommy Lucas, a Financial Advisor At Moisand Fitzgerald Tamayo, told [MSNBC](https://www.cnbc.com/2022/05/06/over-60-million-tax-returns-could-be-completed-automatically-study-says.html) “it would save so many people the stress and headache of figuring out what documents they need, or how they are going to pay for their return to be done.” ## **3. Increased Accuracy ** Since 90% of Americans can take advantage of standard deductions–especially after a 2017 [tax overhaul ](https://www.politico.com/story/2017/12/22/trump-tax-bill-signing-314767)that doubled the standard deduction for taxpayers–a majority of taxpayers could take advantage of an auto-filing system. This means that because there are fewer deductions, there will be fewer mistakes on a pre-populated filing. Allowing for pre-populated or automated filing to increase the accuracy of your taxes. More accuracy also means a smoother, more efficient process that sees you with your return faster than ever. Coincidentally, Neo.Tax is working to automate taxes for small and medium-sized businesses. We are empowering founders and accountants with innovative, tech-forward tools to make preparing your business taxes faster and easier. Our automated R&D Tax Credit solution has expanded the reach of this tax credit, so it is no longer just a benefit for large corporations—by putting money back into the hands of the companies who fuel our diverse economy. We’re saving businesses and accountants time without charging exorbitant fees. It’s what automation is all about. We will continue to update you on the progress of the automation of IRS tax filings as the story develops. Keep up with all things tax, accounting, and tech by signing up for our newsletter. --- ### R&D preparation may become a necessity URL: https://www.neo.tax/blog/rd-preparation-may-become-a-necessity Published: 2022-07-20 Author: Neo.Tax Category: Industry News Summary: 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.. **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? 1. **Taxpayers are required to capitalize R&D expenditures and amortize them over 5 years.** 2. **There is a 15 years amortization period for foreign research expenses. ** 3. **Startups need to pay extremely close attention to how they're categorizing R&D expenses. ** 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](https://www.grantthornton.com/insights/alerts/tax/2022/insights/capitalizing-r-and-e-expenditures-requires-detail-focus) 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: 1. **Congress is delaying the reversal of the R&D capitalization rule** 2. **Regardless of whether you are claiming your R&D credit or not, as of right now your company will need to capitalize and amortize R&D expenditures when filing 2022 taxes** 3. **Companies, startups specifically, need to pay ‌very close attention to R&D expenses for the coming tax year** Don't forget to subscribe to our newsletter to stay up to date with all things industry news, taxes, accounting, and tech. --- ### Indiana Lawmaker Spearheads R&D Tax Credit Increase URL: https://www.neo.tax/blog/indiana-lawmaker-spearheads-rd-tax-credit-increase Published: 2022-07-11 Author: Neo.Tax Category: Industry News Summary: Indiana Lawmaker Spearheads R&D Tax Credit Increase By Neo.Tax Team 2 minute read With backing from the National Association of Manufacturers, GOP... With backing from the National Association of Manufacturers, GOP Representative Jackie Walorski of Indiana put forward an amendment to the tax code that could mean serious increases in research and development tax credits for businesses. Over the years, the R&D Tax Credit has gone through many changes. In 2015, the credit became permanent thanks to the PATH Act. The act also expanded R&D tax credit access to small and medium businesses, as well as startups. Currently, Rep. Walorski is proposing [H.R. 8253](https://walorski.house.gov/wp-content/uploads/2022/06/Walorski_FIRSTAct_117th.pdf), better known as the FIRST Act or the Fostering Innovation and Research to Strengthen Tomorrow Act. This amendment would increase the amount of R&D spending that businesses can claim. Double the credit, double the fun… that should be Rep. Walorski’s slogan. ## **Here are all the proposed changes: ** - **Doubling the traditional limit of $250,000 to $500,000 for startups. ** - **Increasing the traditional rate from 20% to 40% of the increase in R&D spending for existing businesses. ** - **Increasing the Alternative Simplified Credit from 14% to 28% of an increase in company R&D spending. ** - **Doubling the credit from 7% to 14% of R&D spending for companies with no history of research within the past 3 years. ** “Doubling the R&D tax credit will encourage American companies — especially small businesses and startups — to invest in innovation that will unleash economic growth and prosperity,” Walorski said in response to the proposed changes. He further affirmed, “the FIRST Act will take a strategic step toward ensuring that America will lead the world in scientific discoveries, technological breakthroughs, and cutting-edge manufacturing for the 21st century.” The proposed amendment has strong backing from the National Association of Manufacturers, as acknowledged by their senior director of tax policy, David Eiselberg, “the manufacturing industry is the backbone of American research and development, and this bill would support jobs, boost innovation and help ensure America’s future competitiveness.” Sign up for our newsletter to stay up-to-date on the progress of the FIRST Act and other relevant news, developing stories, and industry updates. --- ### Co-Founder Firas Abuzaid on Tackling Expenses URL: https://www.neo.tax/blog/startup-tip Published: 2022-07-11 Author: Neo.Tax Category: Education & Resources Summary: As a startup, there are countless lessons we’ve learned‌. In a sea of missteps and failures, the Neo.Tax team has grown. Making it even more exciting... As a startup, there are countless lessons we’ve learned‌. In a sea of missteps and failures, the Neo.Tax team has grown. Making it even more exciting when we can pass some of what we’ve learned to those who might need a few tips and tricks. As many stories now begin, this month our Startup Tip started with a text. A friend and fellow founder reached out to Neo.Tax co-founder, Firas Abuzaid, wanting a little advice on how to handle company expenses come tax time. **The Question: ** How should our company handle the accounting for expenses like meals and gas that we charge to a company card? **The Tip: ** To future-proof your company for tax time, make all your company purchases using a company card that allows for integration with your tax and accounting software. You can sync your expenses yourself or outsource your bookkeeping. Though hiring a bookkeeper or a fractional CRO shop like AbstractOps or OpStart comes at a cost. More than likely you won’t need to outsource until you’ve raised a seed round or have more capital. **The Recap: ** - **Sign up for a company card ** - **Sign up for an accounting/bookkeeping software, like Xero or QuickBooks. ** - **Sync your company card with your accounting software.** - **Use the card as much as possible for all company expenses. ** - **Use quick classifications like “Meals & Entertainment” for company dinners. ** Share this tip with someone who might need it, or keep it for yourself. Do you have a tip for Startups? Continue the conversation in the comments. For more monthly Startup Tips, follow us on Twitter and sign up for our newsletter. --- ### What's New in July URL: https://www.neo.tax/blog/whats-new-in-july Published: 2022-07-11 Author: Neo.Tax Category: Product & Company Updates Summary: By Neo.Tax Team 2 min read TEAM MANAGEMENT Collaborate with your team Invite and manage team members so you can securely scale your R&D business. ### **By Neo.Tax Team ** **2 min read** TEAM MANAGEMENT **Collaborate with your team ** Invite and manage team members so you can securely scale your R&D business. - Add team members to your firm quickly - See all credits created by your team members automatically - Remove access when someone leaves your team WORKFLOW **Work on multiple credits simultaneously** Open multiple companies in different browser tabs. ![Work on multiple credits simultaneously](/_blog-images/whats-new-in-july-img-1.jpeg) --- ### What To Look For in Your R&D Tax Credit Software URL: https://www.neo.tax/blog/what-to-look-for-in-your-rd-tax-credit-software Published: 2022-06-30 Author: Neo.Tax Category: Education & Resources Summary: Are You Still On The Fence About Which R&D Tax Credit Software To Use? So you’re thinking about the R&D Tax Credit, but some unsavory news about issues.. ### **Are You Still On The Fence About Which R&D Tax Credit Software To Use? ** So you’re thinking about the R&D Tax Credit, but some unsavory news about issues with R&D firms has you asking yourself if the service is even worth your time? Have no fear! We’re here to lay it all out for you. Before we get started, let’s paint the picture. You’re a small to medium-sized business, or maybe you’re the accountant of a small to medium-sized business, and you’ve been working extremely hard on R&D, better known as research and development. You’re excited about your products, and you’re finding your stride, but you wouldn’t mind an injection of funds to keep business moving the way it should. Well, as long as you meet the eligibility requirements, you could be sitting on tens, if not hundreds, of thousands of dollars for your qualified business. You’d want that money, right? Of course! That’s where R&D tax credit software comes in. The archaic task of manually inputting large volumes of information, among other requirements for the tax credit, has long been the bane of an accountant's existence. With R&D software, that task is streamlined to make claiming your research and development credit a breeze. There are a few different options out there and with something as important as your company's R&D tax credit, you want to be sure you are using the right solution for you. Here are a few things to look for when you’re deciding which R&D tax credit software is right for you. ## **Compliance, compliance, oh and did we mention… compliance** The Tax Code is… complex‌—making it that much more important to have the reassurance that all of your documents, like your Form 6765 and your study, are accurate when using R&D credit software. You might think it's AI software… how will I know if anyone is double-checking? Another important feature that goes hand in hand with accuracy is having a human review your documents. When deciding between software, make sure you're looking at companies that have accountants on staff. #### **Bonus points**: Having CPAs with audit and IRS experience to know what to look for when reviewing your information. Looking for peace of mind? Take note if your R&D software is using AI and Machine Learning. These features are going to help ensure that your R&D Tax Credit filing is up to code. ## **Show me the study!** Ok, it all sounds great so far, but what if the worst-case scenario happens–an audit? You want to make sure your R&D software has some sort of contingency in place, right? With audits and the R&D Tax Credit, it’s important to make sure you have all your ducks in a row. Namely, the all-important study. Because research and development tax credits give you a credit for what you spend on research, ‌your company needs to prove that you have indeed spent some of your hard-earned dollars on research. Making it vital to have a study that provides a detailed analysis of qualified projects and the associated expenditures. It's extremely important that the R&D software you use provides this study. ## **If they’re that good, they’ll back it up** We couldn’t agree more. Let’s say you’ve shopped around, you’ve done your due diligence vetting various vendors and doing your ‌research and now it’s time to decide what company has won you over. There is just one last question to ask: **Does the R&D Tax Credit software come with a guarantee? ** Mistakes ‌happen and they’re not always your fault. Work with a company that backs up its product with a money-back guarantee before closing the deal. Work with a product that uses a community of professionals who take your research and development tax credit as seriously as you do by putting their money where their mouth is. ## **We know it’s a marathon, not a sprint** When it’s tax season, it can feel ‌as if you’re sprinting to the finish line–even with an extension. We know how important it is to pace yourself, which is ultimately why you need R&D software that fits your needs. Whether you’re a business owner or accountant, your R&D Tax Credit software needs to be effective and reliable. ### **More Bonus Points: **software that is designed for accountants, by accountants–particularly CPAs with IRS experience. R&D software needs to streamline ‌filing for R&D Tax Credits and implement solutions to make it simpler than ever to: - **Receive vital money for your company.** - **Create additional revenue sources for accountants.** - **Seamlessly link data and employee information to the platforms.** - **Not to mention more time for accountants to focus on hourly billing for high-value consulting. ** ## **It’s all about R-E-S-P-E-C-T** We get it, taxes are hard and we would never want to downplay the difficulties faced in this space. As Aretha Franklin said, it’s all about respect—and we take that seriously, as should any R&D tax software. Find a company that is For Accountants By Accountants, that is taking the old game of tax preparation and creating new rules to help you get more while doing less, and is excited to help you receive every dollar you’re entitled to with the help of innovative R&D Tax Credit software. So, the only question left to ask is, are you ready for your R&D Tax Credits? --- ### What's New In June URL: https://www.neo.tax/blog/whats-new-in-june-2022 Published: 2022-06-23 Author: Neo.Tax Category: Product & Company Updates Summary: By Neo.Tax Team 5 min read With each update, preparing your R&D credit is faster and easier. DASHBOARD Introducing the Accountant Dashboard The new... **By Neo.Tax Team ** **5 min read** With each update, preparing your R&D credit is faster and easier. ### DASHBOARD ## **Introducing the Accountant Dashboard** The new centralized hub allows you to view, manage and grow your R&D business. ![Accountant Dashboard](/_blog-images/whats-new-in-june-2022-img-1.jpeg) - See everything you need to stay on top of R&D at a glance–credit amounts, current status, and last edit– across companies - Switch between credits quickly ### PREPARATION DETAILS ## **Faster workflow ** Optimized for how accountants work so you can see and manage all the credit information together. Make updates quickly as you get answers from your client. ![Faster workflow](/_blog-images/whats-new-in-june-2022-img-2.jpeg) - Finish credits faster with a consolidated view of the detailed questions our team needs to complete the credit and study - Manage and edit all compliance and business questions together - The flexible order allows you to fill out information as you receive it ## **Manage Expenses Across Projects** View and assign R&D activity across multiple projects in one simple view, no matter how many employees or expenses. ![Manage Expenses Across Projects](/_blog-images/whats-new-in-june-2022-img-3.jpeg) - Add additional expenses or edit expense details like location or job description in one click - Show clients the table layout to help them quickly allocate R&D activity across projects - Check expert guidance on each employee role to maximize defensibility ## **Add Technical Project Details Later ** We moved the technical project descriptions later so you can do all the rest of the credit while you’re still waiting on the client’s technical details. ![Technical Project Details](/_blog-images/whats-new-in-june-2022-img-4.jpeg) ![null](/_blog-images/whats-new-in-june-2022-img-5.jpeg) - Connect payroll and allocate R&D activity even if you don’t have detailed project info yet - Add in technical project details at any time ## **Next Month: TOP SECRET ** Stay tuned for an exciting feature that will make your life a lot easier. ![TOP SECRET](/_blog-images/whats-new-in-june-2022-img-6.jpeg) Sign up for our newsletter to keep up with all the latest updates! --- ### AICPA & CIMA Engage22 Recap URL: https://www.neo.tax/blog/aicpa-cima-engage22 Published: 2022-06-22 Author: Neo.Tax Category: Industry News Summary: And just like that, AICPA & CIMA Engage22 is over… Luckily, this time around what happened in Vegas isn’t staying in Vegas. We’re giving you a quick... ## And just like that, AICPA & CIMA Engage22 is over… Luckily, this time around what happened in Vegas isn’t staying in Vegas. We’re giving you a quick recap of what you need to know from the week’s festivities. ## Engage22 delivers once again Amongst a sea of interesting discussion panels and presentations, it is tough to pick just one. But if we have to, _Starting A “Technology Focused” Advisory Practice, Where To Begin_ was a highlight. Our takeaways from the session were: - the need for continued innovation across industries, - visualization and analytics are new areas expected of CPAs, - and the need for accountants to adapt and step away from pen and paper. As the week began to wrap up, the Neo.Tax team was able to reflect on diversity, equity and inclusion during the Diversity Panel with Kimberly Ellison-Taylor, Alfred Ko, Becky Sproul, and Ken Bouyer. Accounting Today covered the eye-opening panel in a recent article. [**Read More**](https://www.accountingtoday.com/list/diversity-in-accounting-still-under-construction?position=editorial_1&campaignname=V2_ACT_Daily_20210503-06092022&bt_ee=5ZWNtauoTT9Fw8%2FvkHTmHIBsyQNNWMqzahgMV4qARTE%3D&bt_ts=1654769022273&utm_campaign=AICPA&utm_source=hs_email&utm_medium=email&_hsenc=p2ANqtz--CuvychdyfB1XWraAxQc2HrcwzFmYXK-DVc2TVSfkvO3cHKyYYsP_8zlK41m4EQwOectVd) ## What happens in Vegas... One event that happened in Vegas and will stay in Vegas, was the Neo.Tax and Glean.ai Happy Hour capped off the week. For all those who attended, thank you for coming. For those who couldn’t make it, we won’t blame you if you have a little bit of FOMO (fear of missing out) – it was a blast and a perfect way to wrap up a terrific AICPA conference. ## It’s Never Too Late To Offer The R&D Tax Credit To the delight of accountants everywhere, the busy season is over. But it’s not too late to offer the[ R&D Tax Credit](/product/credit) to your clients or file it with their extended tax returns. Our innovative software will: - free up billable hours for high-value consulting - accurately utilize automation to complete R&D forms and study - streamline the process of claiming R&D Tax Credits Not to mention the latest addition to Neo.Tax’s product offerings, Platform, our answer to the accountant’s almighty workpapers. With the power of AI, Platform can analyze accounting data by uncovering anomalies and making adjustments all in one place. Who said there isn’t an easy way to do things? [**Schedule Your Demo**](https://meetings.hubspot.com/schaude/accountants) ## See You Next Time! The Neo.Tax Team enjoyed a fantastic week that culminated in an exciting networking happy hour. We can't wait to see you at the next event. Until next time. The Neo.Tax Team --- ### How AI-Powered Technology Is Changing The Accounting Industry URL: https://www.neo.tax/blog/how-ai-powered-technology-will-change-the-accounting Published: 2022-06-22 Author: Neo.Tax Category: Education & Resources Summary: by Taylor Schaude 5 min read “Disrupt” was the tech buzzword most associated with the 2010s. It neatly paired with the prevailing ideology of that... ### by Taylor Schaude ### 5 min read “Disrupt” was the tech buzzword most associated with the 2010s. It neatly paired with the prevailing ideology of that era: the old, clunky incumbents were rusting over and a whole new wave of industry, powered by 1s and 0s, had arrived to replace them. Uber was here to disrupt taxis. WeWork was here to disrupt the office. Peloton was here to disrupt the gym. But the 2020s have shown us that disruption needs, well, disrupting. It’s become clear that there is value in the trust and interpersonal way business has historically been done. The key is for tech to help bolster the way those traditional businesses do their work. There’s no arena where that is clearer than in accounting. As of 2021, there were [32.5 million small businesses](https://www.oberlo.com/blog/small-business-statistics) in the U.S. For small business owners, accountants are the most trusted advisor they have for guidance relating to their business. ![trusted advisor](/_blog-images/how-ai-powered-technology-will-change-the-accounting-img-1.jpeg) The value of that position cannot be understated — being the first person a business owner goes to at high-leverage moments means the accountant is an indispensable figure in the SMB landscape. The ability to position yourself as a “trusted advisor” is instrumental in client retention. Think about it this way, only [61%](https://www.globenewswire.com/news-release/2019/05/22/1841042/0/en/OnPay-Releases-Findings-of-2019-Small-Business-Finance-and-HR-Report.html) of business owners were satisfied with their accountant’s level of service. For small-business owners who strongly agree that their accountant is a trusted advisor, the number of satisfied customers jumps to 88%. Those are important figures for the value clients place on the trust they have in their accountant. Making it that much more important to factor in trustworthiness when creating AI for the accounting space. AI can help strengthen this relationship. Technology that is offered by companies like Neo.Tax and Mercury, which automates time-consuming and mundane tasks, can free up time for accountants and reinforce the expertise needed to excel in that role. ## **The Three Eras of Accounting Technology** ![Three Eras of Accounting Technology](/_blog-images/how-ai-powered-technology-will-change-the-accounting-img-2.jpeg) There are three distinct eras in accounting technology. We can understand the first as Accounting Tech 1.0. During that era, humans handled most accounting and taxes. Companies relied on outsourced experts and a lot of time dedicated to preparation. Compliance was very manual. Intuit and Oracle sparked the era we’ll refer to as Accounting Tech 2.0. Thanks to the cloud evolution, companies moved online and began integrating with other services to streamline and improve their processes. In its purest form, computing automates routine and manual tasks, allowing skilled workers to focus on the bigger picture. By taking the monotonous work out of the accounting process, these technological advances elevated the accountant to a position where they could act as an advisor. The newest era that has just begun is Accounting Tech 3.0. Finances and taxes will no longer be reactive; the technology can make them a strategic or future-proof element of every business. This emergence of open platforms will empower business owners to have a holistic view of their financial health. Modern banking tools like Mercury can help accountants get a simple view of their client’s finances and integrate their banking with third-party providers, like Neo.Tax, which offers an automated tax solution. Ultimately, making the process fast and simple to maximize value for small businesses. In the coming era of Accounting Tech 3.0, three things have become clear: 1. AI investment will empower the accountant and the SMB owner. AI will automate routine tasks, putting tactical solutions into the back office that drive efficiency and extend the productivity of humans. 2. Clients will expect accountants to adopt more modern technology and will want to partner with accountants who will leverage software to provide value to their business. To stay competitive, being “tech-savvy” will become a requirement for accountants. 3. Technology will never replace human relationships. Technology can shorten delivery times and remove many of the more tedious accounting tasks. However, clients will look to their accountants as advisors and partners in their businesses more than ever. The accounting industry is already working to adapt to the changing landscape. In 2015, Accenture stated: “Transactional tasks will move to integrated business services solutions that use robotics, which will automate or eliminate up to 40 percent of transaction accounting work by 2020.” In 2021, the American Institute of Certified Public Accountants (AICPA) changed its exam that “put more of an emphasis on understanding business processes, automation, and data analytics.” ![accounting industry](/_blog-images/how-ai-powered-technology-will-change-the-accounting-img-3.jpeg) If the buzzword of the 2010s was “disrupt”, the buzzard of the 2020s would be “bolster.” The Accounting Tech 3.0 stack can become a toolbox for accountants to become ever more integral parts of the SMB landscape. Technology won’t replace humans; it’ll supercharge them. With Mercury and Neo.Tax, accountants can focus on the aspect of their service customers value most: their expertise. --- ### Infographic - Qualifying for the R&D Tax Credit URL: https://www.neo.tax/blog/infographic-qualifying-for-the-rd-tax-credit Published: 2022-06-22 Author: Neo.Tax Category: R&D Tax Credits Summary: ... ![null](/_blog-images/infographic-qualifying-for-the-rd-tax-credit-img-1.jpeg) --- ### How to File Your Form 8974: ADP Run URL: https://www.neo.tax/blog/how-to-file-your-form-8974-adp-run Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 with ADP Run Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form ... ### **How to File Your Form 8974 with ADP Run ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - If you miss the filing deadline, you will need to amend that quarter’s payroll tax return. - ADP requires you to submit a completed Form 8974 to [ADP.JobCredit.Request@adp.com](mailto:ADP.JobCredit.Request@adp.com). - If you’re filing to claim the R&D payroll tax credit for the previous tax year, the earliest you can process your credit is one quarter after you file your federal income tax return and Form 6765. The deadline to file for any given quarter is 30 days after the end of the quarter. For example, if you’re filing to claim the payroll tax credit for 2021, and you intend on filing your Federal Tax Return in Q1 2022, then the earliest you can process your credit is Q2 2022. To do so, you must file your Form 8974 and Form 941 by 30 days after the end of Q2 2022. - Some of the information here is sourced from ADP and may not reflect ADP Run’s latest changes. How to complete Form 8974: In the quarter following the filing of your income tax return and Form 6765, you will need to send ADP Run a completed Form 8974 to [ADP.JobCredit.Request@adp.com](mailto:ADP.JobCredit.Request@adp.com). This should be done at least 2 weeks before the quarter closes. Neo.Tax will help you to create the Header and Part 1 of Form 8974. You will need to complete Part 2 of Form 8974 using Form 941 provided by ADP Run. Steps: - Use Neo.Tax to complete Part 1 of Form 8974. - After filing your income tax return with Form 6765 attached, locate the Form 8974 generated by Neo.Tax, and complete Part 1 columns C and E using information provided in Form 6765. - Line 7: Enter the amount from Part 1, line 6, column (g). - Line 8: Enter the amount from Form 941, line 5a, column 2. - Line 9: Enter the amount from Form 941, line 5b, column 2. - Line 10: Add lines 8 and 9. Enter the result on line 10. - Line 11: Multiply line 10 by 50% (0.50). - Line 12: Enter the smaller of line 7 or line 11. Make sure to enter this amount on Form 941, line 11. If line 12 is less than line 7, the remaining amount can be used on a Form 8974 for the next quarter. - You’re done! Send your completed Form 8974 to [ADP.JobCredit.Request@adp.com](mailto:ADP.JobCredit.Request@adp.com) for filing. Be sure to get confirmation from ADP that this form has been filed. --- ### How to File Your Form 8974 and Form 941: QuickBooks URL: https://www.neo.tax/blog/how-to-file-your-form-8974-and-form-941-quickbooks Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 and Form 941 with QuickBooks Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax... ### **How to File Your Form 8974 and Form 941 with QuickBooks ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - If you miss the filing deadline, you will need to amend that quarter’s payroll tax return. - Quickbooks does not support automatic filing of the R&D tax credit, so you will need to turn off automatic filing and submit your forms manually. - These forms need to be submitted quarterly until the credit is fully exhausted. - If you’re filing to claim the R&D payroll tax credit for the previous tax year, the earliest you can process your credit is one quarter after you file your federal income tax return and Form 6765. The deadline to file for any given quarter is 30 days after the end of the quarter. For example, if you’re filing to claim the payroll tax credit for 2021, and you intend on filing your Federal Tax Return in Q1 2022, then the earliest you can process your credit is Q2 2022. To do so, you must file your Form 8974 and Form 941 by 30 days after the end of Q2 2022. - Some of the information below is sourced from QuickBooks and may not reflect Quickbooks’s latest changes. Steps: - Sign into your Quickbooks account → Select the Settings icon, then select Payroll Settings → In the Taxes and forms section, clear the Automate Taxes and forms checkbox → Select Save. When you turn off automated taxes, Quickbooks reminds you when your tax payments and form filings are due. You will find reminders in your payroll to do list. - Download Form 941 for the quarter you’re eligible to start claiming the credit. This is the quarter after you filed your return that included Form 6765. For example, if your income tax returns were filed in Q1 2022, then you can claim the credit against payroll taxes on Form 941 for Q2 2022. - To find your Form 941: Sign into Quickbooks → Go to “Taxes” → Click “Payroll Tax” → Select “Quarterly Forms” → Choose the 941 Form → Click the period from the drop-down and then click “View”. - Update your Form 941 to include the amount of payroll tax credit you would like to use to offset your quarterly payroll taxes. You will need to update Form 941, Part 1, Line 11a with the amount of the credit you have indicated on Form 8974, Part 2, Line 12. Below you will find steps for how to complete form 8974. - When you are ready to pay and file your payroll taxes, you can follow the [Quickbooks instruction guide on how to pay and file payroll taxes and forms in Online Payroll.](https://quickbooks.intuit.com/learn-support/en-us/help-article/electronic-filing/pay-file-payroll-taxes-forms-online-payroll/L8JqxhbaE_US_en_US#M7127) - You will need to file Form 8974 with Form 941 to the IRS every quarter until your credit is exhausted. How to complete Form 8974: Neo.tax will help you to create the Header and Part 1 of Form 8974. You will need to complete Part 2 of Form 8974 using Form 941 provided by Quickbooks. Steps: - Use Neo.tax to complete Part 1 of Form 8974. - Line 7: Enter the amount from Part 1, line 6, column (g). - Line 8: Enter the amount from Form 941, line 5a, column 2. - Line 9: Enter the amount from Form 941, line 5b, column 2. - Line 10: Add lines 8 and 9. Enter the result on line 10. - Line 11: Multiply line 10 by 50% (0.50). - Line 12: Enter the smaller of line 7 or line 11. Make sure to enter this amount on Form 941, line 11. If line 12 is less than line 7, the remaining amount can be used on a Form 8974 for the next quarter. - When you are ready to pay and file your payroll taxes, you can follow the [Quickbooks instruction guide on how to pay and file payroll taxes and forms in Online Payroll.](https://quickbooks.intuit.com/learn-support/en-us/help-article/electronic-filing/pay-file-payroll-taxes-forms-online-payroll/L8JqxhbaE_US_en_US#M7127) - You will need to file Form 8974 with Form 941 to the IRS every quarter until your credit is exhausted. --- ### How to File Your Form 8974 and Form 941: Zenefits URL: https://www.neo.tax/blog/how-to-file-your-form-8974-and-form-941-zenefits Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 and Form 941 with Zenefits Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax... ### **How to File Your Form 8974 and Form 941 with Zenefits ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - If you miss the filing deadline, you will need to amend that quarter’s payroll tax return. - Zenefits does not support automatic filing of the R&D tax credit, so you will need to turn off automatic filing and submit your forms manually. - These forms need to be submitted quarterly until the credit is fully exhausted. - If you’re filing to claim the R&D payroll tax credit for the previous tax year, the earliest you can process your credit is one quarter after you file your federal income tax return and Form 6765. The deadline to file for any given quarter is 30 days after the end of the quarter. For example, if you’re filing to claim the payroll tax credit for 2021, and you intend on filing your Federal Tax Return in Q1 2022, then the earliest you can process your credit is Q2 2022. To do so, you must file your Form 8974 and Form 941 by 30 days after the end of Q2 2022. - Some of the information below is sourced from Zenefits and may not reflect Zenefits’s latest changes. Steps: - Download Form 941 for the quarter you’re eligible to start claiming the credit. This is the quarter after you filed your income tax return that included Form 6765. For example, if your income tax returns were filed in Q1 2022, then you can claim the credit against payroll taxes on Form 941 for Q2 2022. To access a copy of your Form 941 for Zenefits Payroll runs, see the “Tax Package” in the “Reports” tab of the “Payroll” app. - If you are on the “Full Service” package, ask Zenefits to disable automatic filing. You can do this by emailing [support@zenefits.com](mailto:support@zenefits.com). In your email, specify the quarter(s) in which you do not want Zenefits to file Form 941. For example, “Dear Zenefits, we will be manually filing Form 941 for Q2 2022. Please continue to calculate, but do not file Form 941 for Q2 2022.” Zenefits will usually respond within 24 hours to confirm that this is done. You should do this at least three weeks before the end of the quarter. If you are on the “Calculate Only” package, you can skip this step. - Update your Form 941 to include your payroll tax credit amount. You will need to update Form 941, Part 1, Line 11a with the amount of the credit you have indicated on Form 8974, Part 2, Line 12. The steps for how to complete form 8974. - You will need to file Form 8974 with Form 941 to the IRS every quarter until your credit is exhausted. How to complete Form 8974: Neo.Tax will help you to create the Header and Part 1 of Form 8974. You will need to complete Part 2 of Form 8974 using Form 941 provided by Zenefits. Steps: - Use Neo.Tax to complete Part 1 of Form 8974. - After filing your income tax return with Form 6765 attached, locate the Form 8974 generated by Neo.Tax, and complete Part 1 columns C and E using information provided in Form 6765. - Line 7: Enter the amount from Part 1, line 6, column (g). - Line 8: Enter the amount from Form 941, line 5a, column 2. - Line 9: Enter the amount from Form 941, line 5b, column 2. - Line 10: Add lines 8 and 9. Enter the result on line 10. - Line 11: Multiply line 10 by 50% (0.50). - Line 12: Enter the smaller of line 7 or line 11. Make sure to enter this amount on Form 941, line 11. If line 12 is less than line 7, the remaining amount can be used on a Form 8974 for the next quarter. - You will need to file Form 8974 with Form 941 to the IRS every quarter until your credit is exhausted. --- ### How to File Your Form 8974: Rippling URL: https://www.neo.tax/blog/how-to-file-your-form-8974-rippling Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 with Rippling Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form... ### **How to File Your Form 8974 with Rippling ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - Rippling will help you generate Form 8974 and file it on your behalf. - Some of the information below is sourced from Rippling and may not reflect Rippling’s latest changes. Steps: - First, file your income taxes with Form 6765 attached. - After you file your income taxes, login to Rippling and open the payroll app. - Click “Settings” and select “Federal R&D Credit.” - Answer the questions required for Rippling to generate Form 8974. - Rippling will automatically generate Form 8974 and apply the R&D tax credit on Form 941 every quarter. - You will see a refund applied on your quarterly filings. - You should receive a check back from the IRS. The exact timing will depend on Rippling and the IRS. We encourage you to reach out to Rippling to ensure that all forms have been submitted correctly. --- ### How to File Your Form 8974: Sequoia One URL: https://www.neo.tax/blog/how-to-file-your-form-8974-sequoia-one Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 with Sequoia One Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax return with... ### **How to File Your Form 8974 with Sequoia One ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - If you miss the filing deadline, you will need to amend that quarter’s payroll tax return. - If you’re filing to claim the R&D payroll tax credit for the previous tax year, the earliest you can process your credit is one quarter after you file your federal income tax return and Form 6765. The deadline to file for any given quarter is 30 days after the end of the quarter. For example, if you’re filing to claim the payroll tax credit for 2021, and you intend on filing your Federal Tax Return in Q1 2022, then the earliest you can process your credit is Q2 2022. To do so, you must file your Form 8974 and Form 941 by 30 days after the end of Q2 2022. - Sequoia can file Form 8974 on your behalf if you send them a completed CSA Addendum, Form 8974, and a copy of your filed Form 6765. - Some of the information below is sourced from Sequoia and may not reflect Sequoia’s latest changes. Steps: Sequoia can help process the R&D tax credit on your behalf. To file your R&D credit through Sequoia, send the following documents to [RDTax@sequoia.com](mailto:RDTax@sequoia.com): - S1 CSA Addendum R&D Tax Credit Processing: You will need to request this document from Sequoia. This document must be signed by an account administrator, and only needs to be signed once — you do not need to sign it every time you file for the R&D tax credit. - IRS Form 8974: Neo.Tax will help you to create the Header and Part 1 of Form 8974. After filing your income tax return with Form 6765 attached, locate the Form 8974 generated by Neo.Tax, and complete Part 1 columns C and E using information provided in Form 6765. This is all that Sequoia needs. Sequoia will track and roll over remaining credits quarter over quarter, so you don’t need to resend Form 8974 every quarter. However, you will need to resend form 8974 on an annual basis as you become eligible for additional R&D tax credits. - IRS Form 6765: Send Sequoia a copy of the Form 6765 that you filed with your income tax return. Sequoia will track and roll over remaining credits quarter over quarter, so you don’t need to resend Form 6765 every quarter. However, you will need to resend Form 6765 on an annual basis, as you become eligible for additional R&D tax credits. Deadline You must provide this documentation to Sequoia by the 1st of the final month of the quarter in which the credit will first be applied. For example, if you are claiming the credit to offset taxes beginning in Q2 2022 you need to submit these documents by June 1st 2022 to be processed with the quarterly filing done in July. How you will receive the credit Sequoia will save a copy of the filed IRS Form 8974 for your reference. The IRS will send the refund directly to Sequoia, and Sequoia will refund you the IRS approved R&D credit amount. --- ### How to File Your Form 8974: TriNet URL: https://www.neo.tax/blog/how-to-file-your-form-8974-trinet Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 with TriNet Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form... ### **How to File Your Form 8974 with TriNet ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - You must submit Form 8974 to TriNet within 2 months of the quarter’s close in which your Form 6765 was filed. TriNet may not be able to process your credits if you miss the deadline. - You must sign TriNet’s Path Act Addendum. - Some of the information below is sourced from TriNet and may not reflect TriNet’s latest changes. Steps: 1. First, file your income tax return with Form 6765 attached 2. Then, locate the Form 8974 generated by Neo.Tax, and complete Part 1 columns C and E using information provided in Form 6765 3. Send Form 6765 and Form 8974 to [TrinetPathAct@Trinet.com](mailto:TrinetPathAct@Trinet.com) with the following information: - Subject line: IRS PATH Act R&D payroll tax credit - Your company name and the contact information of a company officer - Contact email and phone number of a company employee - Your TriNet 3-digit company ID 4. TriNet requires an authorized person in the company to sign a Path Act Addendum via DocuSign. 5. Once TriNet receives your R&D credit refund from the IRS, the credit will be reflected as a line item in your next TriNet invoice. --- ### How to File Your Form 8974: Gusto URL: https://www.neo.tax/blog/how-to-file-your-form-8974-with-gusto Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 with Gusto Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form... ### **How to File Your Form 8974 with Gusto ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - Gusto requires an accountant’s assistance to set up Form 8974. - Gusto requires that you submit the necessary information by the 15th of the last month of the quarter. - For a $100 monthly fee, Gusto allows you to receive the benefits of the credit immediately. - Some of the information below is sourced from Gusto and may not reflect Gusto’s latest changes. Steps: - Sign into your Partner Dashboard (only accountants have access to this) - Go to the Clients section - Click the Actions menu on the far right - Click the Federal R&D credit - Select the type of business income tax return this company uses - Select the Fiscal Tax Year this company uses - Enter the date this company filed their tax return - If this company filed under a different Federal EIN at any point in their corporate tax year, the previous Federal EIN is required for the Federal R&D Credit filing - Enter the total Federal R&D credit claimed — this amount can be found on line 44 of Form 6765 - Click Save & Continue - Select whether or not this company has claimed part of this credit on a Form 941 this fiscal year or not - If this company claimed the credit in any prior quarters, please enter these values so Gusto may determine their remaining Federal R&D Credit - Click Save & Continue - Review the information to make sure everything is accurate - Once you are ready, click File Tax Credit - Determine if you’d like this credit to be taken quarterly (free), or in real time For $99 per month, you can receive the credit in real time by asking Gusto to stop withholding employer payroll taxes until the credit is fully consumed. If you would like to do this, follow these steps after completing all the steps above: - Go to the Settings section of your admin account. - Click the Preferences tab - Next to "Real Time Federal R&D Tax Credit," click edit - Click Enabled - Click Save --- ### How to File Your Form 8974: Justworks URL: https://www.neo.tax/blog/how-to-file-your-form-8974-with-justworks Published: 2022-06-21 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 with Justworks Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax return with... ### **How to File Your Form 8974 with Justworks ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - Some of the information below is sourced from Justworks and may not reflect their latest changes. Steps: - First, file your income tax return with Form 6765 attached - Then, locate the Form 8974 generated by Neo.Tax, and complete Part 1 columns C and E using information provided in Form 6765 - Reach out to your Justworks representative to review Form 6765 and Form 8974 - Justworks will complete the rest of the credit filing process and apply the credit to your federal payroll taxes --- ### How To File Form 8974: ADP Total Source URL: https://www.neo.tax/blog/how-to-file-form-8974-adp-total-source Published: 2022-06-17 Author: Neo.Tax Category: Education & Resources Summary: How to File Your Form 8974 with ADP Total Source Summary: The IRS requires that you file Form 8974 the quarter after you file your income tax return... ### **How to File Your Form 8974 with ADP Total Source ** Summary: - The IRS requires that you file Form 8974 the quarter after you file your income tax return with Form 6765 attached. - If you miss the filing deadline, you will need to amend that quarter’s payroll tax return. - If you’re filing to claim the R&D payroll tax credit for the previous tax year, the earliest you can process your credit is one quarter after you file your federal income tax return and Form 6765. The deadline to file for any given quarter is 30 days after the end of the quarter. For example, if you’re filing to claim the payroll tax credit for 2021, and you intend on filing your Federal Tax Return in Q1 2022, then the earliest you can process your credit is Q2 2022. To do so, you must file your Form 8974 and Form 941 by 30 days after the end of Q2 2022. - ADP TotalSource can file Form 8974 on your behalf if you complete and sign their election form. - Some of the information below is sourced from ADP and may not reflect ADP TotalSource’s latest changes. Steps: - To file your R&D Credit with ADP TotalSource you must complete their [Research & Development Tax Credit Election Form](https://f.hubspotusercontent20.net/hubfs/8669470/eeouf1koc1wdcv-ADP%20R%26D%20Tax%20Credit%20Form.pdf). Send ADP Total Source your completed election form, as well as a copy of your Form 6765 at least 2 weeks before the quarter ends. Be sure to get confirmation from ADP that this form has been filed. --- ### Where’s my R&D tax credit? URL: https://www.neo.tax/blog/what-happens-after-you-file-your-rd-tax-credit Published: 2022-06-17 Author: Neo.Tax Category: Education & Resources Summary: What happens after you file your R&D Tax Credit? If you’re wondering when you’re going to receive your R&D Tax Credit, the short answer is: it’s all... ### What happens after you file your R&D Tax Credit? If you’re wondering when you’re going to receive your R&D Tax Credit, the short answer is: it’s all down to when_ _you, or your accountant, filed your income taxes and Form 6765. As we all know, dealing with the IRS can be… unpredictable–so we’ve created a quick reference on: - how the R&D credit works, - when you should expect your credit, - important dates and deadlines, - and steps for claiming your R&D tax credit as a payroll tax credit with your payroll provider. ## **Preparing and Filing Your Claim** When preparing your R&D Tax Credit, you can prepare your own, have your accountant manually prepare it for you, or use a third-party service. Regardless of the preparation method, there are key steps you need to follow to file and receive your credit. ### Filing Form 6765 After you have prepared your R&D Tax Credit, you or your accountant need to file Form 6765, along with your Federal Income Tax Return. The R&D credit is based on the qualified research expenses incurred during the tax year and is on the business income tax return for the company claiming the credit. There is a section at the bottom of Form 6765 to allow qualified small businesses to apply all the credit to payroll taxes instead. **_Note_**_: _Don’t want to apply all of your credit? You can also apply other amounts up to a maximum of $250,000. ### Payroll Credit & Filing Form 8974 If you make the election to take the payroll credit, then you must file Form 8974 with your quarterly tax return. Hand this form off to your payroll provider, and they will incorporate the credit into your payroll tax return. The credit is first applied against employer payroll taxes quarterly, beginning in the first calendar quarter after you file your federal income tax return. ###### **Here’s an example**: ###### You file your company’s income tax return with Form 6765 in Q2, between April 1 and June 30. The credit will offset your employer's payroll taxes beginning in Q3, and for every quarter until the credit is exhausted. However, the exact timing and method of tax savings depend on your payroll provider and R&D credit preparer--if you’re working with a credit preparer. **_Note_**_: _Some R&D Credit preparation companies offer a loan advance to get your credit amount right away instead of waiting. There are some cons to opting for this type of service, like: - As with any loan, this process can be problematic and frustrating. - There could be incremental fees. - Not to mention a scenario where the amount of your return changes, but the loan amount is already locked in. ## **Important Dates ** Because Form 6765 needs to be filed with your income tax return, timing is everything when getting your R&D tax credit as soon as possible. Trust us, we understand wanting to reduce your burn–so keep in mind these dates: End of Quarter Deadlines: - Q1: March 31 - Q2: June 30 - Q3: September 30 - Q4: December 31 Extension Filing Deadline: - October 15 Payroll Providers Turnaround: - 1-30 days* *_Gusto is currently the only provider that offers real-time refunds for an additional cost._ IRS Turnaround: - 8-10 weeks ## **How soon can I see the refund?** This is a hard question to answer and, unfortunately, the most honest answer is: 1. it depends on when your accountant files your income tax return and Form 6765. 2. It also depends on how quickly your payroll provider files payroll taxes, 3. AND it depends on how long it takes the IRS to manually process your R&D credits. As we said, it’s a hard question to answer. This is why all the above dates and turnaround times are so important. **It’s all a domino effect. ** By meeting the income tax return filing deadline–be that on April 15 or by the end of each subsequent quarter–you can then have your payroll tax provider process your payroll tax credits, which helps get everything over to the IRS quick, fast, and in a hurry. The best way to calculate when you'll see your tax credit is: - Look at the date that you filed your income tax return. - Add 30 days to that date, which is the maximum time payroll providers have to file. - Then add 8-12 weeks for the IRS (yes, we added two more weeks to the standard 8-10 weeks for the IRS because of the delays they’re already facing). The date that you land on could serve as a good approximation for when you can expect your credit. ## **How will I receive the tax savings from the credit?** This depends on your payroll provider. **_Note_**_:_ check with your payroll provider to confirm how the R&D tax credit will be refunded. However, we can give you a general overview of the process: 1. Your payroll provider will file your payroll credit after the close of the quarter. 2. The IRS will issue a refund 8-12 weeks after processing the quarterly payroll tax return with your R&D credit. **_Note_**_: _even after you submit the credit information to your payroll provider, it's important to remember that most providers will continue to withhold and make deposits of your regular employer's payroll taxes each pay period. If you use a PEO, a professional employer organization–where your employees are “employees of record” for the payroll company–the process is similar, except that the PEO will receive and reconcile the credit across all their client companies first and then they will then credit your account. **_Note_**_: _what's the fastest way to enjoy your tax savings? Do not submit the employer payroll until you know the credit amount. That way, you don’t have to wait for a refund check from the IRS. Currently, Gusto is the only payroll provider that allows this option. However, Gusto charges you $100 a month extra for this service, coined the “Real-Time Refund.” ## **How to file with your payroll provider** Last, but certainly not least, payroll! Here’s a guide to filing payroll tax credits with the following payroll providers. Just click a menu item to view the steps for your provider: - [**ADP Total Source**](https://www.neo.tax/blog/how-to-file-form-8974-adp-total-source) - [**Gusto**](https://www.neo.tax/blog/how-to-file-your-form-8974-with-gusto) - [**TriNet**](https://www.neo.tax/blog/how-to-file-your-form-8974-trinet) - [**Justworks**](https://www.neo.tax/blog/how-to-file-your-form-8974-with-justworks) - [**Sequoia One**](https://www.neo.tax/blog/how-to-file-your-form-8974-sequoia-one) - [**ADP Run**](https://www.neo.tax/blog/how-to-file-your-form-8974-adp-run) - [**Zenefits**](https://www.neo.tax/blog/how-to-file-your-form-8974-and-form-941-zenefits) - [**Quickbooks**](https://www.neo.tax/blog/how-to-file-your-form-8974-and-form-941-quickbooks) - [**Rippling**](https://www.neo.tax/blog/how-to-file-your-form-8974-rippling) Want to learn more about all things R&D? Check out some of our related articles and don't forget to sign up for our newsletter to keep up with Neo.Tax! --- ### You Filed A Tax Extension — Now What? URL: https://www.neo.tax/blog/what-to-do-after-filing-a-tax-extension Published: 2022-04-27 Author: Neo.Tax Category: Education & Resources Summary: Tax Day has passed, and you decided to file an extension. The first thing to know is: you’re not alone. As Matt Metras, a tax specialist at MDM Financial.. Tax Day has passed, and you decided to file an extension. The first thing to know is: you’re not alone. As Matt Metras, a tax specialist at MDM Financial Services [told CNBC](https://www.cnbc.com/2022/04/07/heres-who-should-consider-filing-a-tax-extension-and-how-to-do-it-.html): “I’m filing more extensions than I ever have in my entire career this year.” But now that you’ve moved your tax filing deadline to October 17, what are the next steps to take? **#1 - Understand the key filing dates.** Although you filed an extension and have until October 17, 2022, there are other important dates you may want to be aware of based on what other credits you are filing. Review the [Key 2022 Filing Dates to be aware of](https://www.neo.tax/blog/2022-key-filing-dates) and communicate with your accountant if there are any dates you are targeting and why. **#2 - Take advantage of the extra time.** Do your best to tackle as much of the return as possible so the filing process is less painful in the fall. Create a Tax Return Checklist so you know what steps you still need to take — tackle them one at a time or send them over to your accountant, who can get an early start on the process. **#3 - Don’t miss out on savings.** Tax season is the worst part of many founders’ years, but it doesn’t have to be. There are many opportunities to extend your runway via credits specifically built for startups, like the R&D Tax Credit — so, [check your eligibility today](https://www.neo.tax/). **#4 - Find every dollar you’re owed.** Companies like Neo.Tax have made more and more startups aware of the Federal R&D Tax Credit, a bill specifically redesigned in 2015 to put more money in the coffers of innovative American small businesses. But did you know that 38 states offer their own [state-specific R&D Tax Credit to startups](https://www.neo.tax/blog/which-states-offer-the-rd-tax-credit?uid=six-essential-tax-tips-for-your-tech-startup&_ga=2.85208730.2081035591.1643227484-166106242.1636064007)? Find out if you’re eligible to file for a state tax credit; it can put thousands back into your startup. **#5 - Don’t procrastinate.** You may have filed an extension just because Tax Season proved too busy; lucky for you, the extra time can prove lucrative for your startup. [Sign into Neo.Tax](https://app.neo.tax/login) and start preparing your Federal and State R&D Tax Credits. The process takes as little as 30 minutes and can save you hundreds of thousands of dollars. Tax Season has never been more complicated for startup founders. As Metras told CNBC: “Everything is taking two to three times longer than it should to get a return out the door.” But there aren’t many downsides to filing for an extension. The key is to make the extra six months work for your business. At Neo.Tax, we’ve made it easier than ever to get the most out of your taxes. Whatever the reason was for filing an extension, using our R&D Tax tool will make it the best decision you’ve made this year. --- ### Neo.Tax is Selected for GGV's SMBTech 50 List! URL: https://www.neo.tax/blog/neo-tax-is-selected-for-ggvs-smbtech-50-list Published: 2022-04-26 Author: Neo.Tax Category: Product & Company Updates Summary: This morning, the global venture capital firm GGV Capital announced their inaugural SMBTech 50, the first list to highlight innovative and growing... This morning, the global venture capital firm GGV Capital announced [their inaugural SMBTech 50](https://www.smbtech50.com/), the first list to highlight innovative and growing startups that focus on serving small-and-medium-sized businesses (SMBs). We’re excited to share that Neo.Tax made the list and is the only tax startup included! GGV Capital researched startups on Crunchbase and then nominated the most innovative companies in the SMB ecosystem for their list. They also asked 30 of the top VC firms “which companies are the next Shopify, Intuit, Square, etc?” and added their nominees to the pool. A list of more than 200 SMB Tech companies were compiled and then voted upon by the VC firms. GGV Capital and 30 other venture firms recognized the work we’re doing, which further emboldens us to make tax season a valuable moment for the very companies creating jobs and technology in America. We set out to build Neo.Tax because we saw an opportunity: a 2015 change to the R&D Tax Credit made startups and SMBs eligible to receive millions of dollars in credits. Yet due to lack of awareness these credits were being left on the table. This was just the start. Today, we’re working hard to simplify tax season by using software to democratize the ability to claim valuable credits to businesses of all sizes. Our goal is to enable innovative SMBs to easily access the money they are owed. We think the time has come to level the playing field between SMBs and Fortune 100s when it comes to tax season. This year, we closed [a $10 million Series A round](https://techcrunch.com/2022/02/10/neo-tax-raises-10m-to-help-startups-get-rd-tax-credits/) which will allow us to continue to be an innovating force in the SMB tax space. As Jeff Richards, GGV Capital’s managing partner, [explained on Twitter](https://twitter.com/jrichlive/status/1518922588998848512?s=21&t=6lDU1dDEHfeps8ZF1rCaMQ): “SMBs are 40% of US GDP and 60% of Americans work for an SMB.” This is who Neo.Tax was designed for; we’re here to make sure they’re the companies who take advantage of the extended runway they deserve. To be recognized alongside companies like Gusto, Canva, Calendly, Mercury, Notion, and so many others is a massive honor. We couldn’t be prouder to be a part of this list. --- ### How to File a Tax Extension for Your Business URL: https://www.neo.tax/blog/the-rd-tax-credit Published: 2022-04-14 Author: Neo.Tax Category: Education & Resources Summary: Tax Day is April 18, 2022! It’s fast approaching and you’re realizing you’re not going to be able to file in time. So, what are your options? And will it.. Tax Day is April 18, 2022! It’s fast approaching and you’re realizing you’re not going to be able to file in time. So, what are your options? And will it still be possible [to claim your R&D tax credit](https://www.neo.tax/)? ### The R&D Tax Credit Looking like you can’t make the April 18, 2022 tax deadline to file your tax return? The good news is you can prepare your R&D tax credit now (in under an hour) so it is ready to go when you file your taxes. If you’re a business filing for an extension that doesn’t mean you’re out of luck when it comes to claiming your R&D Tax Credit. Any eligible business can file their R&D Credits along with the returns they file after the six-month extension. To find out if your business is eligible, answer a few questions at [Neo.Tax](https://app.neo.tax/eligibility-check?_ga=2.155145264.969697705.1648047351-1777373138.1642103870) — if you’re a startup and are filing your returns without filing for an R&D credit, you may be leaving as much as $250,000 on the table. ## How to File an Extension The IRS makes it relatively simple to file for a Federal Tax Return Extension. However, while requesting an extension is straightforward, there are some important things you need to remember: - An extension of time to file your return does not grant you any extension of time to pay your taxes; - Companies in a loss position typically won't owe (but this is not a certainty) and likely will only need to file the extension with name, address details and select the entity type box; - You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties; - You must file your extension request no later than the regular due date of your return (April 18, 2022 this year!); - Want to know more? See what the IRS says [here](https://www.irs.gov/instructions/i7004)! ### Form 7004 Companies operating as a C-Corporation can request a six-month extension by filling out Form 7004, which can be mailed or e-filed via the IRS website. One last note: Leave yourself a little time when filing your Form 7004, because the IRS will alert you if there were errors that caused your extension to be denied. You have a chance to refile Form 7004 with any corrections as long as it’s still before the deadline. Your R&D tax credit must be filed with your tax return. If your extension is granted, you will have until October 17, 2022 to file your tax return and your R&D tax credit. Tax season used to be the worst time of the year, but at Neo.Tax, we’re committed to making it simple, straightforward and valuable for startups. Let us help you file today (or six months down the road)! --- ### Debunking Tax Code Myths URL: https://www.neo.tax/blog/debunking-tax-code-myths Published: 2022-04-06 Author: Neo.Tax Category: R&D Tax Credits Summary: Everyone has advice for startup founders during tax season; here are some facts vs. fiction of the R&D tax credit. You’re feeling unsure if you should... **_Everyone has advice for startup founders during tax season; here are some facts vs. fiction of the R&D tax credit._** You’re feeling unsure if you should be studying up on tax credits. Tax season is always overflowing with things to do, and you’ve had friends, fractional CFOs, and others tell you not to waste your time looking into tax credits. Time is precious, but then again: how many ways do you know to make up to $250,000 in less than an hour? That’s what an R&D tax credit can be worth to a startup, so maybe it’s time to reconsider putting this off. The tax code is endlessly confusing, but we at Neo.Tax love to get into the weeds (_I know, it’s odd, but it’s what we do!_). So, you’ve heard myths and rumors about the tax code — we’re here to sort the facts from the fictions. **FICTION**: My accountant says my startup is too small or too early to claim the R&D credit **FACT**: In 2016, Congress changed the R&D tax credit so that companies that have had less than 5 years of revenue (even pre-revenue companies!) can use the R&D credit against payroll taxes, instead of income taxes. That means even startup companies with losses can use the credit, as long as they are doing research to create a new or improved product for their business! **FICTION**: It’s fine to wait until later and just amend your tax filing to claim the R&D credit **FACT**: The “original” R&D credit (which only offset future taxable income) could be claimed on amended returns, so many accountants used to delay a study until a company was about to be profitable. However, the new “payroll” R&D credit can only be claimed on an original, timely-filed return (including extensions). Once it is claimed on the return, you can begin offset payroll taxes starting the quarter after that return is filed, so it doesn’t make sense to wait! **FICTION**: Your company isn’t profitable, so don’t even consider claiming the R&D credit **FACT**: The R&D **payroll** tax credit refunds payroll taxes not income taxes, so you don’t need to wait until you’re profitable. The Payroll R&D credit refunds 6.25% of qualifying gross payroll expenses starting the quarter after you file with your federal tax return! In layman's terms that means when applying the credit to payroll taxes, you’ll see about a 6.25% drop in your company-wide payroll costs until the credit is fully utilized! **FICTION**: R&D Studies are cumbersome, time-consuming and a hassle to complete **FACT**: When people think of R&D Studies, they think of the traditional multi-year studies conducted for multinational companies for the original R&D Tax credit. But the R&D Payroll Tax Credit was designed for “qualified small businesses” that tend to be under 5 years of age, so the process is much more straightforward. With Neo.Tax, the process has never been easier — the founder can complete most questions online in less than 20 minutes and have their filing ready to go. We simplified and streamlined the process so startups can get the money they’re owed! **FICTION**: I don’t have enough time before April 15 to file for this credit **FACT**: Completing the R&D Payroll Tax Credit can take under an hour when doing it with Neo.Tax. If you don’t have an hour, have your accountant file an extension on your taxes. You can submit your claim with the return you file after the extension. As any founder knows, money doesn’t grow on trees — but 10% of your engineering salaries returned is the easiest way to extend your runway! [Go to Neo.Tax](https://app.neo.tax/eligibility-check?_ga=2.212843924.1272136942.1648403583-1777373138.1642103870) to find out how much the IRS owes you! --- ### Which States Offer the R&D Tax Credit URL: https://www.neo.tax/blog/which-states-offer-the-rd-tax-credit Published: 2022-04-01 Author: Neo.Tax Category: R&D Tax Credits Summary: Learn about the State R&D Tax Credit, which States offer it, and if your Startup qualifies. We first built Neo.Tax because we saw that far too many... **Learn about the State R&D Tax Credit, which States offer it, and if your Startup qualifies.** We first built Neo.Tax because we saw that far too many innovative startups were failing to claim the money they were owed via the Federal R&D Tax Credit. Today, we’re excited to announce that companies can now use Neo.Tax to prepare their State R&D Tax Credit as well! ### **What is the State R&D Tax Credit?** Like the Federal R&D Tax Credit, many states have a state-specific R&D credit to incentivize innovative companies to create jobs and products within their state. Currently, 38 states offer specific R&D credits — each differs slightly, but many follow similar frameworks to the Federal R&D Tax Credit when it comes to Qualified Expenses and deadlines. ### **Which States Currently Offer an R&D Tax Credit?** Currently, 38 states offer their own R&D Tax Credit in an effort to incentivize job creation, business profits, and as a means to stimulate the local economy. Those states are: ![Offer an R&D Tax Credit](/_blog-images/which-states-offer-the-rd-tax-credit-img-1.png) Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Virginia, Wisconsin. While each state has different rules on which expenses qualify, what type of companies can file for the credit, and how much the credit is worth, it’s always valuable for a company to claim every R&D credit they’re owed. Go to Neo.Tax and we can help calculate how much you’re owed and help you prepare your R&D tax credits today! ### **What is the Deadline to File?** In almost every state, the deadline to file for the R&D credit is the same as the deadline for filing your state tax return. However, Arkansas, Delaware, Florida, Maryland, New Hampshire, Pennsylvania, and Virginia all allow for different filing deadlines. Pro Tip: Don’t procrastinate on preparing your R&D tax credit. Have it ready for when your accountant files your tax return. Neo.Tax has streamlined the process to make it simple and fast to file today. ### **What Companies are Eligible for State R&D Credits?** Most of the 38 participating states allow C-Corporations, S-Corporations, LLCs, and Partnerships to file for their State R&D Tax Credit. However, Connecticut, Florida, and Rhode Island allow only C-Corporations to file for their State R&D Tax Credits and Massachusetts allows for only C-Corporations and S-Corporations to file. ### **How Much Money Am I Owed via My State R&D Credits?** Each state is unique in what they offer for R&D credits. We recommend you reach out to Neo.Tax to find out how much you could possibly get for your Federal and State R&D tax credits. We’ve built a tool to make the process painless and simple so you can go through on your own or be guided by our tax experts. Get started today! --- ### Status on R&D Capitalization Rules URL: https://www.neo.tax/blog/status-on-rd-capitalization-rules Published: 2022-03-09 Author: Neo.Tax Category: Industry News Summary: Status on R&D Capitalization Rules - Keeping it brief. What? Potential changes to the R&D Capitalization rules When? Wednesday, March 9, 2022... Status on R&D Capitalization Rules - Keeping it brief. **What? **Potential changes to the R&D Capitalization rules **When? **Wednesday, March 9, 2022 **What should I know? **The 2700+ page omnibus bill just dropped in Congress last night, March 8, and must be voted on before Friday, March 11 to avoid a government shutdown. This bill could be the last best chance for lawmakers to repeal or delay the implementation of R&D Capitalization rules that went into effect on 1/1/2022. It has decent bipartisan support - and this bill is expected to pass without much debate as both sides want to get financial support for Ukraine out the door quickly. Unfortunately, it appears that the R&D capitalization provisions were dropped from the bill at the last minute due to Progressive Democrats wanting to use business tax breaks as a bargaining chip to help them negotiate for extension of child tax credits and other relief to working families. There's still a chance that the R&D capitalization law will get repealed retroactively back to the beginning of the year, but we may not see that happen for at least a few more months. **I want to know more! **[https://rollcall.com/2022/03/08/negotiators-working-through-final-issues-on-omnibus-text/](https://rollcall.com/2022/03/08/negotiators-working-through-final-issues-on-omnibus-text/) --- ### Key 2022 Filing Dates to be Aware of URL: https://www.neo.tax/blog/2022-key-filing-dates Published: 2022-03-08 Author: Neo.Tax Category: Industry News Summary: Don’t miss out on tax refunds because you missed a deadline. Did you know that if your accountant files your 2021 tax return, with your prepared R&D tax... Don’t miss out on tax refunds because you missed a deadline. Did you know that if your accountant files your 2021 tax return, with your prepared R&D tax Credit, **by the March 31, 2022** cut off date you could see a 6% drop in your total payroll cost starting April 1, 2022! With Neo.Tax you can prepare your R&D tax credit in as little as 30 minutes, self-guided or guided, and all credits go through final review with our tax experts, led by our Chief Tax Officer (who is a former IRS agent.) Below are some key filing dates to be aware of in 2022: **January 24th – **2022 Tax Season begins! **January 31st **– Form 1099 –NEC (Nonemployee Compensation) is due for **US Contractors**. In general, the total on this form should match a qualified contractor’s pay included in the product. **January 31st **– Last 2021 Quarterly Payroll Form 941 is due. (Form 8974 should be attached) **February 15th** – Form 1099 MISC (Miscellaneous Income). **March 31st **– Deadline for a customer to file (Form 1120) in order to receive Q2 R&D payroll offset. **April 18th **– 2021 Form 1120 Corporate Tax Returns or a 6-mon. tax extension is due. **April 30th **– First 2022 Quarterly Payroll Form 941 is due. (Form 8974 should be attached). **June 30th **– Deadline for a customer to file (Form 1120) in order to receive Q3 R&D payroll offset. **July 31st **– Q2 Payroll Form 941 is due. (Form 8974 should be attached). **September 30th **– Deadline for a customer to file (Form 1120) in order to receive Q4 R&D payroll offset. **October 17th **– Final deadline to file a timely Form 1120 Corporate Tax Return _if_ an extension was filed by April 18th. **October 31st **– Q3 Payroll Form 941 is due. (Form 8974 should be attached). --- ### New Neo.Tax Integrations Available URL: https://www.neo.tax/blog/new-integrations Published: 2022-03-08 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax has expanded our payroll and accounting software integrations! The Neo.Tax team is dedicated to continuously improving and simplifying our... [Neo.Tax](https://neo.tax) has expanded our payroll and accounting software integrations! The Neo.Tax team is dedicated to continuously improving and simplifying our product offerings. A key component of automating taxes is integrating a company’s data into our product so that all you have to do is sign into your accounts and we do the rest of the work. Our newest product release, available March 3, 2022, expands the number of payroll and accounting software solutions Neo.Tax seamlessly integrates with. Users can now easily integrate financial information from the following providers: ![New Neo.Tax Integrations Available](/_blog-images/new-integrations-img-1.jpeg) These new accounting and payroll software integrations are in addition to our existing integrations with Gusto, Trinet, Justworks, Rippling and QuickBooks. By integrating with financial systems, Neo.Tax allows users to quickly and automatically pull in all expenses and then easily identify the qualifying research and development expenses. For software we don’t currently integrate with or for customers who maintain data in offline systems we allow for manual uploading of data. Our mission is to simplify taxes using technology - giving you a fast and trustworthy process, all in one. --- ### CPE Course: What Are R&D Tax Credits? URL: https://www.neo.tax/blog/cpe-course-what-are-rd-tax-credits Published: 2022-02-21 Author: Neo.Tax Category: Education & Resources Summary: Learn all about R&D tax credits and how you can save your clients money in this insightful webinar course What Are R&D Tax Credits: An Intro For... Learn all about R&D tax credits and how you can save your clients money in this insightful webinar course [**What Are R&D Tax Credits: An Intro For Accountants & Advisors**](https://www.cpaacademy.org/webinars/a0D2S00000tPqh3UAC)** **presented by CPA Academy and** **hosted by Stephen Yarbrough, co-founder and Chief Tax Officer of Neo.Tax. Take this free course and any one of the numerous courses available on [**cpaacademy.org**](https://cpaacademy.org) to earn CPE credits. --- ### IRS Gives New Guidance on R&D Tax Credit URL: https://www.neo.tax/blog/irs-gives-new-guidance-on-rd-tax-credit Published: 2022-02-16 Author: Neo.Tax Category: Industry News Summary: IRS Gives New Guidance on R&D Tax Credit Last September, in an effort to keep companies from retroactively claiming questionable expenses under the IRS... **Last September, in an effort to keep companies from retroactively claiming questionable expenses under the IRS R&D Tax Credit, the IRS Office of Chief Counsel **[**issued a memo**](https://www.irs.gov/pub/irs-lafa/20214101f.pdf)** with new requirements for backing up claims. **The new guidance required a much more detailed accounting of which business components and employees were directly involved in the research and development work at the company. The guidance applies to any company filing an amended return — these are used to claim R&D credits against past tax returns in one or multiple years. The R&D Tax Credit is designed to incentivize innovative work within the United States — companies can claim a 10% credit on qualified expenses, which include: - Employee wages - Payments to contractors - Cloud hosting and infrastructure costs - Cost of supplies With the new IRS guidance, companies claiming the credit via an amended return will now need to identify all the research activities they’ve performed and the names of employees or contractors who performed each specific research activity. As of September 2021, they also must include the information each individual sought to discover during their R&D activities. After pushback from tax professionals about the new burden of the guidance, [**the IRS made a new announcement Wednesday February 9, 2022**](https://www.irs.gov/newsroom/irs-sets-forth-required-information-for-a-valid-research-credit-claim-for-refund)** expanding the timeframe for “perfecting” a company’s claim from 30 to 45 days.** Any amended R&D Tax Credit filed between January 10, 2022 through January 9, 2023 that is missing “proof” that the research was qualified will have a 45-day period to provide the IRS with that information. **The good news for those using Neo.Tax to prepare their R&D Tax Credit: we always provide a Study along with the forms your company files. **This Study was built in-house by cofounder Stephen Yarbough, who spent two decades in the IRS processing hundreds of R&D Credits. The new guidance from the IRS demonstrates a new, more stringent view of amended returns — the burden of proof is on the company and will need to be even more detailed — so waiting to amend the returns may become more expensive and cumbersome going forward. That means it’s more important than ever to claim your R&D Credit on your original returns and Neo.Tax makes the process simple and easy. Happy Tax Season! --- ### Neo.Tax Announces Partnership with Mercury URL: https://www.neo.tax/blog/neo-tax-and-mercury-partner-to-offer-an-automated-solution Published: 2022-02-16 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax and Mercury partner to offer an automated solution to the R&D tax credit to Mercury’s customers The most common question we get at Neo.Tax is... ## Neo.Tax and Mercury partner to offer an automated solution to the R&D tax credit to Mercury’s customers The most common question we get at Neo.Tax is: "What's the catch?" It might be difficult to believe that tens (or hundreds) of thousands of dollars of non-dilutive capital is waiting for founders who file for the R&D tax credit. But there is no catch. Neo.Tax was built to simplify taxes for startups so they could stop leaving money on the table. Today, we're pleased to announce our partnership with [Mercury](https://mercury.com/), banking for startups. With this partnership, we will be adding Neo.Tax to [Mercury Capital](https://mercury.com/capital-guide). Startups use Mercury Capital to find financing options that fit their unique needs. If there's a fit, Mercury recommends partners to their startups. With Neo.Tax as Mercury's partner, startups can access payroll R&D tax credits and extend their runway. We're excited to be able to help eligible startups claim the money that they deserve. Mercury was founded in 2017. Like Neo.Tax, it puts founders first. The product is intuitively designed, has unique features like API access and custom team-management, and integrates with most of the tools brands are already using. We actually started as a Mercury customer and couldn’t be more excited to evolve our role. "Folks typically think about revenue expansion or their ideal customer profile when they think about partnerships," says Ahmad Ibrahim, co-founder and CEO of Neo.Tax." While those things are there, what truly excited us about working with Mercury is our values-alignment — it felt like we were talking to our own internal team." "We created Mercury Capital to help our customers find trusted and easy-to-access funding options for their business," says Immad Akhund, co-founder and CEO of Mercury. "R&D tax credits are an impactful source of credit for most startups, but they are hard to access and opaque. Neo.Tax has built an amazing product that has made it quick and painless to access R&D tax credits and we are excited to partner so that our customers can easily access the service." The tax code is complex and constantly changing — Neo.Tax has built a tool to make it simple and intuitive to claim your R&D tax credit. Our founding team includes a Stanford PhD in Machine Learning, a former IRS agent with two decades of experience as a CPA, and an ex-Intuit product manager. We live and breathe the tax code, so you don’t have to. With our partnership with Mercury, we’re excited to become yet another arrow in the quiver of innovative founders. The R&D credit was created to give money back to startups; we’ve built the tool to get you the most in the fastest and simplest way. --- ### Neo.Tax raises $10M and partners with Mercury URL: https://www.neo.tax/blog/neo-tax-raises-10m-and-partners-with-mercury Published: 2022-02-16 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.Tax raises $10M and partners with Mercury to modernize tax credits and taxes for startups and accountants Series A funding accelerates small business. ## Neo.Tax raises $10M and partners with Mercury to modernize tax credits and taxes for startups and accountants #### **_Series A funding accelerates small business and accountant access to R&D tax credits_** Mountain View, Calif., Feb. 10, 2022 - Neo.Tax, a startup and early leader in simplifying and automating taxes for startups and small businesses, today announced a $10 million Series A funding round. The funding round was led by Infinity Ventures with participation from Google Ventures, Acrew Capital, and Fin Venture Capital, in addition to participation from the existing seed investors – Uncork Capital, Floodgate, Liquid 2 Ventures, and Lux Capital. Neo.Tax is automating taxes, starting with making the R&D tax credit simple to claim for startups – and enabling fintechs and accountants to offer this seamlessly to their customers. And what better fintech to kick this off with than Mercury. Mercury provides banking for startups, along with virtual & physical debit cards, API access and custom team-management, and integrations with the tools startups are already using. Neo.Tax started as a Mercury customer but it soon became clear there was a lot more to do together. “What truly excited us about working with Mercury is our values-alignment,” said Ibrahim, CEO of Neo.Tax. “Neo.Tax has built an amazing product that has made it quick and painless to access R&D tax credits and we are excited to partner so that our customers can easily access the service.” says Immad Akhund, co-founder and CEO of Mercury. “We created Mercury Capital to help our customers find trusted and easy-to-access funding options for their business” Mercury customers are now able to complete their R&D Tax Credit claim in minutes, with the flexibility of a self-service solution backed by friendly white glove support. “Neo.Tax is like having a former IRS Agent walking our customers through the process,” said Stephen Yarbrough, Chief Tax Officer at Neo.Tax. Neo.Tax has received overwhelming gratitude from early-stage startups for modernizing the tedious and difficult process of applying for the R&D tax credit. “This is awesome!” said Lukas Wagner, VP Finance at Pipe. “I hope at some point you can do this for all of our taxes.” Which is precisely aligned with the Neo.Tax vision. Neo.Tax’s approach is reflected in their founding team, where a Stanford PhD in Machine Learning (Firas Abuzaid) is automating the brain of a former IRS Agent (Stephen Yarbrough), productized by a former Intuit product manager (Ibrahim). The Series A funding will go toward growing the product, data and engineering teams that are currently working on a series of automated tax products, in addition to the R&D Tax Credit. “We are leveraging cutting-edge technology to reduce errors, increase efficiency, and map the tax genome to optimize businesses’ taxes,” said Firas Abuzaid, CTO of Neo.Tax. “We’re overthinking taxes so that businesses don’t have to.” Despite incredible technological advances, taxes have not changed. “It’s crazy that taxes haven’t advanced since the Rosetta Stone Age,” continued Ibrahim, “and computers are supremely advantaged at solving this ancient and archaic problem, because it’s all rules and numbers.” Neo.Tax reimagines taxes as an advantage by making taxes simple and straightforward. --- ### A 1981 Tax Law means AWS Costs are a Tax Credit URL: https://www.neo.tax/blog/a-1981-tax-law-means-aws-costs-are-a-tax-credit Published: 2022-02-04 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: When Ronald Reagan signed the Economic Recovery Tax Act of 1981 into law, businesses quickly jumped to take advantage of the new tax break that let them... When Ronald Reagan signed the Economic Recovery Tax Act of 1981 into law, businesses quickly jumped to take advantage of the new tax break that let them lease or rent computers. At the time, computers were prohibitively expensive, which made them impossible to own for all but the largest corporations and research institutions. Instead, most people leased time on mainframe computers. The 1981 bill made it so the money companies spent leasing mainframe computers were Qualified Expenses towards a tax credit. Obviously, computers are no longer prohibitively expensive — but that doesn’t mean the credit is any less impactful for technology startups. That’s because though most companies buy their computers, they still spend a substantial part of their burn on another technological lease: cloud computing. Cloud Service Providers (CSPs), like Amazon Web Services, have stepped in to provide a similar service to the one IBM provided in the 1980s. So long as your startup is using cloud computing to develop a new product, feature or process, the leasing of server space fits squarely into the regulations laid out in the law: 1) the computer is owned and operated by another company; 2) the computer is located off premises; 3) the startup is not the primary user of the computer. Clearly, all three of these regulations are true for CSPs. You might feel like we’re deep in the weeds (we’re tax guys — believe me, we could get way, way deeper), so let’s cut to the chase. What does this all mean for you? It means that, in all likelihood, there’s a tax credit you haven’t yet claimed that your startup is owed. In some cases, you can be recouping up to 10% of your cloud-computing expenses. So, let us help you get your maximum R&D Tax Credit — that money can be the thing that extends your runway and lets your startup continue to grow. --- ### "Audit Protection" is Not What it Seems URL: https://www.neo.tax/blog/audit-protection-is-not-what-it-seems Published: 2022-02-04 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: The prospect of “audit protection” is enticing for customers but, in reality, it’s actually a costly trap. Our Co-Founder and Chief Tax Officer Stephen... The prospect of “audit protection” is enticing for customers but, in reality, it’s actually a costly trap. Our Co-Founder and Chief Tax Officer Stephen Yarbrough spent seven years auditing R&D Tax Credits at the IRS. He explains why we decided not to offer “audit protection” at neo.tax: It’s not surprising that customers love the idea of “audit protection” — tax season is big and scary and audits are a nightmare. But what sounds like insurance for a customer is actually offered to protect the company that files the credit. “Audit protection” creates a situation where the interests of the customer and the filer are simply not aligned. I’ll give an example: when I was at the IRS, I was assigned an audit of a company that had applied for the maximum $250,000 credit. They’d paid one of the large R&D credit mills 30% of their credit to file on their behalf and the firm had cut corners and included irrelevant documents to try to justify the giant credit. Right as I began looking through the filing, I noticed all sorts of red flags — there were patents from decades before and none of the alleged interviews with engineers had been included. It was clear this audit was going to be an involved process. So, thank goodness the company had opted for “audit protection,” right? Wrong. The R&D Credit Mill’s “audit protection” stated that, in the case of an audit, the company must let the firm defend the R&D Tax Credit the way they saw fit. The original contract had a maximum fee that the firm could charge, but that maximum fee disappeared once the “audit protection” kicked in. Because the firm’s main goal was protecting against the IRS finding that their R&D Tax Credit was incorrectly filed, they delayed hearings and dragged the case out for months. At one point, the company’s CEO explained to me that he wished he could just drop the case and pay back the $250,000, but that that would trigger a clause that forced him to pay the entirety of the billable hours the firm had racked up. By then, the total bill had reached more than $1 million; one of the higher-ups at the firm charged $3,000 per hour for his services. The audit itself was pretty cut and dry, but as the case dragged on and it became clear the firm would use every avenue to protect its filing, the auditors and I started digging into the other available tax records. We looked through the company’s books with a fine-tooth comb — and the R&D Tax Credit Mill’s “audit protection” was uninterested in protecting the company from all these other audits that could potentially be triggered. What was supposed to protect the company instead exposed it to further scrutiny, existential tax limbo, and the prospect of a crippling bill if they decided to settle. As I stated earlier, the interests of the customer and the filer are simply not aligned. So, why don’t we offer “audit protection”? Because we don’t think it actually protects you. Instead, we’ve built a system that creates an automated filing based on your answers to simple questions. So long as the answers are true and your startup is in the software space, the R&D Tax Credit will be approved. And as a final safeguard, as we fine-tune our machine-learning algorithm, each filing will be reviewed by me — a certified CPA who’s spent two decades in the R&D Tax Credit space including seven years auditing for the IRS. We don’t offer “audit protection”, but we do offer the peace of mind of a system built by an expert who’s studied both tax law and the IRS audit guide. And I’ll reach and double-check if anything in your filing causes this former IRS agent’s eyebrows to rise. At neo.tax, we’re committed to being the simplest and smartest way for startups to get the R&D Tax Credit you’re owed. --- ### Building a Brighter Future with Our Partners URL: https://www.neo.tax/blog/building-a-brighter-future-with-our-partners Published: 2022-02-04 Author: Neo.Tax Category: Product & Company Updates Summary: Neo.tax is the best service to claim your growing company's R&D tax credit, quickly and efficiently. Our software streamlines a lot — and will continue... Neo.tax is the best service to claim your growing company's R&D tax credit, quickly and efficiently. Our software streamlines a lot — and will continue to simplify more and more for your startup’s tax season — but we can't do everything. So, we’ve partnered with some of our favorite software companies to make sure Neo.Tax customers get the best prices and best service on the market when it comes to every aspect of your startup. We’ve solved for taxes — these world-class companies have solved for so much else! ## Mercury Unlike your parents’ brick-and-mortar banks, Mercury has built a banking service designed specifically for growing startups: FDIC-insured accounts, instantly activatable physical and digital cards for new hires, and online wires, ACHs, and money transfers. Best of all, they have tools built with fast-growing startups in mind (it takes one to know one, you know?). On top of the banking service, we’re also very excited by Mercury Raise, their in-house fundraising tool. This is the banking service you’ve been looking for, founders. At Neo.Tax, we’re so hyped to be the one to finally help you make the switch! At Neo.Tax, we couldn’t be more excited to partner with these companies we believe are delivering the best-in-class products. They’re innovative, disruptive, and a secret weapon for any startup — just like us. So, what are you waiting for? ## Clearco Clearco has built a tool to give you best-in-class actionable growth insights and a new, novel way to access capital. Tapping into the more than 17,000 ecommerce brands that use their service, Clearco’s dashboard can let you quickly assess where you stack up in your category when it comes to MoM growth and other metrics, and how your marketing spend aligns with their goals. They also have deployed more than $2 billion in capital to ecommerce startups in non-dilutive financing. We’re excited to partner with Clearco, because we think it’s another great way to extend runway and maximize your startup’s growth trajectory! ## Brex Brex Cash and Brex’s corporate cards make it easy to manage your startup’s spend with the equivalent of a financial OS. Seamlessly create digital or physical cards for your employees on the day they’re hired and create custom expense policies and spend limits for each card. And with the built-for-startupland OS, creating, managing, and visualizing spend is streamlined and superpowered. At Neo.Tax, we believe startups deserve the best tools and services to do what they do best: innovate and disrupt. That’s why we partnered with Brex: this is the corporate card built to power your startup. ## Airwallex Neo.Tax enables you to claim your growing company's R&D tax credit, quickly and efficiently. We also recognize that in a borderless world, cross-border growth creates foreign-exchange pain points. That’s why we have partnered with Airwallex to help solve that problem! Neo.Tax customers can get started by clicking on this link to receive USD $15,000 FX fee-free as a welcome gift. ## Firstbase.io As we’ve learned in our decades in taxes, founder mistakes early on can often doom a startup when it comes time to fundraise. The first step of incorporating seems simple, but it’s all too easy to overlook the details as you prepare to jump from the idea stage to a real business. For founders based outside the United States, the challenge is doubly difficult (and doubly important to get right). Firstbase.io has made the process incredibly simple and streamlined — no confusing paperwork and no hidden fees. That’s why we want to make sure our Neo.Tax customers know to use them while incorporating. And best of all, Firstbase.io has agreed to offer every Neo.Tax customer 15% off when they sign up to use the service! --- ### Checklist for Maximizing Your R&D Tax Credit in 2022 URL: https://www.neo.tax/blog/checklist-for-maximizing-your-r-d-tax-credit-in-2022 Published: 2022-02-04 Author: Neo.Tax Category: R&D Tax Credits Summary: Overview of the credit R&D credit eligibility is much easier to qualify for than many startups may think. It can apply to product development, as well as.. ## Overview of the credit R&D credit eligibility is much easier to qualify for than many startups may think. It can apply to product development, as well as to general operations such as new product development processes, software development, and other related quality improvement activities. Your organization could be eligible for the R&D tax credit if it: - Devotes time and resources to creating new or innovative products - Improves existing products - Develops processes, patents, prototypes, or software - Hires designers, engineers, or scientists ## Checklist ### 1. Document qualified products and processes The R&D credit may be claimed for both products and/or services and the respective development processes. This double qualification opportunity puts technology companies in a unique position to maximize the benefits. #### EXAMPLE If a company has designed a new product and must create a new production or software development process to produce the product they bring to market, both workstreams can qualify. Additionally, if you are developing any sort of hardware, the tooling costs incurred for production may qualify as well. ### 2. Record technical documentation consistently The best way to ensure you will pass an R&D tax review is to ensure consistent technical documentation. This means you should be actively recording the following throughout your production process: - Specific start and completion dates - Description of the technical challenge - Iterations and versions taken to solve the challenge The more detail and accuracy you are able to include per your research and development activities, the better. ### ‍3. Identify all qualified personnel For most startups, salary is the main component of the R&D credit. The law allows for three different activities to qualify for credit: 1. The performance of qualified activities 2. The direct support of qualified activities 3. The direct supervision of qualified activities #### EXAMPLE If a company is developing a new software as a service (SaaS) offering, the developers, and subject matter experts developing the product’s core value and functionalities are clearly performing qualified R&D activities. From there, an initial product/service must be built with the assistance of the company’s customer success and testing employees. Those individuals and activities may be considered the direct support of R&D. Lastly, assume one of the company’s engineering directors supervises the process from a technical point of view and reports the findings companywide. Those types of activities can also qualify for the credit as the direct supervision of R&D. ### 4. Identify and maximize appropriate cloud computing expenses These days, most software companies are using cloud computing as a core part of their business. Only certain uses of cloud computing services count as qualified research expenses (QREs). A qualified expense must be used in relation to a new or improved product or process, is technological in nature and there is a level of technical uncertainty that can be eliminated through a process of experimentation. #### EXAMPLE Software developers can use a cloud environment to not only perform their development work, but also to design a testing environment to quality control the new code. Therefore, if there is an experiment you wanted to run, but you were worried about the expected cloud computing cost, you should be relieved that much of that cost is likely qualified to be credited back. ### 5. Opt for US based contractors and employees ‍While the pandemic has seen an increase in foreign workers and contractors supporting US technology companies, the R&D tax credit incentivizes companies to stay domestic when it comes to employing technical talent. At most early stage companies the main cost of R&D is salaries. Noting that and the fact that only research activities conducted in the US will count as a qualified research expense, founders should think about using more US based employees or contractors to fuel their product development. There is certainly a tradeoff in labor costs, but the tax code in this case is certainly incentivizing the use of US based technical employees. This list was created through internal and external research for optimizing your R&D credit for next year. Shoot us a note if you enjoyed the article and let us know if there is anything else you are doing that should be added to our list! Get in touch to file your R&D credit [here.](https://quvys7s58pf.typeform.com/to/c6o13uXY) --- ### Does my Startup Qualify for the R&D Tax Credit? URL: https://www.neo.tax/blog/does-my-startup-qualify-for-the-r-d-tax-credit Published: 2022-02-04 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: What is the R&D Tax Credit? The research and development (R&D) tax credit is tax legislation passed to incentivize American companies to invest in... ## What is the R&D Tax Credit? The research and development (R&D) tax credit is tax legislation passed to incentivize American companies to invest in innovation.More than $12 billion worth of R&D tax credits were claimed in 2014, but a significant portion 0of that money went to Fortune 500 companies. Congress has taken specific action of the last half-decade to make sure the credit is available to early-stage startups. The goal is to give innovative startups the tax credit they need to create new, valuable ideas in the United States. ## ‍Does my startup qualify for the R&D Tax Credit? If you’re a startup in the tech space, you more than likely qualify for the R&D Tax Credit. The qualifications for the credit are: 1. You are working to eliminate a technical uncertainty. 2. You are experimenting via modeling, trial-and-error, simulation or other methods. 3. The experimentation process relies on a hard science. 4. The goal of this process is to create a new or improved product or system. Importantly, in order to use the R&D Credit towards your payroll rather than your income, you must also fit these 3 criteria: 1. Less than $5 million in revenue. 2. Less than 5 years since first revenue. 3. Employees (and payroll taxes) in the U.S. ![Does my startup qualify for the R&D Tax Credit](/_blog-images/does-my-startup-qualify-for-the-r-d-tax-credit-img-1.jpeg) ## How much can the R&D Tax Credit save my startup? The 2016 expansion of the R&D Tax Credit allows startups to claim the credit against their payroll tax for up to 5 years. Each year, they can receive a maximum credit of $250,000, so theoretically, a company could receive a maximum of $1.25 million over their first five years. ## Why haven’t I heard of the R&D Tax Credit before? First, the tax code is purposely obscured. Second, the R&D Tax Credit didn’t apply to startups like yours until 2016. The newness of the law means many companies are leaving money on the table. But, we’re here to help. neo.tax’s automated filing system can complete the process for your company in less than 15 minutes. We take just 5% of your savings and only after they arrive in your bank account. The R&D Tax Credit was written for startups like yours; get the money that you’re owed. ## History of the Tax Credit When Ronald Reagan signed the Economic Recovery Tax Act of 1981 into law, businesses quickly jumped to take advantage of the new tax break that let them lease or rent computers. At the time, computers were prohibitively expensive, which made them impossible to own for all but the largest corporations and research institutions. Instead, most people leased time on mainframe computers. The 1981 bill made it so the money companies spent leasing mainframe computers were Qualified Expenses towards a tax credit. While the bill was built to democratize access to computers in the business world, it ended up becoming most valuable for the largest companies. In a section of The Protecting Americans From Tax Hikes Act of 2015 (PATH), congress set out to fix that issue. For years, the R&D tax credit could only be used to offset a company’s income tax. Obviously, most early-stage startups don’t have any income to offset. So, starting in 2016, in order to incentivize innovation at the early startup level, the PATH Act allowed early startups to use the R&D Tax Credit towards payroll tax as well. That law made thousands of startups newly eligible for the R&D Tax Credit; unfortunately, most still don’t realize or have the resources to file for the money they’re owed. --- ### Neo.Tax and Mercury partner to offer an automated solution to the R&D tax credit to Mercury’s customers URL: https://www.neo.tax/blog/neo-tax-mercury-partnership Published: 2022-02-04 Author: Ahmad Ibrahim Category: Product & Company Updates Summary: The most common question we get at Neo.Tax is: "What's the catch?" It might be difficult to believe that tens (or hundreds) of thousands of dollars of... The most common question we get at Neo.Tax is: "What's the catch?" It might be difficult to believe that tens (or hundreds) of thousands of dollars of non-dilutive capital is waiting for founders who file for the R&D tax credit. But there is no catch. Neo.Tax was built to simplify taxes for startups so they could stop leaving money on the table. Today, we're pleased to announce our partnership with [Mercury](https://mercury.com/), banking for startups. With this partnership, we will be adding Neo.Tax to [Mercury Capital](https://mercury.com/capital-guide). Startups use Mercury Capital to find financing options that fit their unique needs. If there's a fit, Mercury recommends partners to their startups. With Neo.Tax as Mercury's partner, startups can access payroll R&D tax credits and extend their runway. We're excited to be able to help eligible startups claim the money that they deserve. Mercury was founded in 2017. Like Neo.Tax, it puts founders first. The product is intuitively designed, has unique features like API access and custom team-management, and integrates with most of the tools brands are already using. We actually started as a Mercury customer and couldn’t be more excited to evolve our role. "Folks typically think about revenue expansion or their ideal customer profile when they think about partnerships," says Ahmad Ibrahim, co-founder and CEO of Neo.Tax." While those things are there, what truly excited us about working with Mercury is our values-alignment — it felt like we were talking to our own internal team." "We created Mercury Capital to help our customers find trusted and easy-to-access funding options for their business," says Immad Akhund, co-founder and CEO of Mercury. "R&D tax credits are an impactful source of credit for most startups but they are hard to access and opaque. Neo.Tax has built an amazing product that has made it quick and painless to access R&D tax credits and we are excited to partner so that our customers can easily access the service." The tax code is complex and constantly changing — Neo.Tax has built a tool to make it simple and intuitive to claim your R&D tax credit. Our founding team includes a Stanford PhD in Machine Learning, a former IRS agent with two decades of experience as a CPA, and an ex-Intuit product manager. We live and breathe the tax code so you don’t have to. With our partnership with Mercury, we’re excited to become yet another arrow in the quiver of innovative founders. The R&D credit was created to give money back to startups; we’ve built the tool to get you the most in the fastest and simplest way. --- ### Neo.Tax Recommends AbstractOps URL: https://www.neo.tax/blog/neo-tax-recommends-abstractops Published: 2022-02-04 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: At Neo.Tax, we believe in the power of well-designed tech-powered tools to streamline the life of a founder. Our R&D Tax Credit solution was built with... At Neo.Tax, we believe in the power of well-designed tech-powered tools to streamline the life of a founder. Our R&D Tax Credit solution was built with the belief that disruptive companies deserve the chance to be innovative (and deserve the thousands of dollars they’re owed). People don’t build startups to file taxes—they found them to change the world. That’s why our team at Neo.Tax has been so impressed by what we’ve seen from [AbstractOps](https://www.abstractops.com/), the startup back-office operations OS from cofounders Hari Raghavan, Adam Spector, and Bhavesh Kakadiya. The experienced founders have built a product that creates a software-based operations partner for startup founders. As any founder knows: without operations, startups fail. Their goal is to remove the headache of back-of-office/operations work so a founder can focus on what they founded the startup to do: R&D/product/sales. Their dashboard allows a founder to manage all back-office work—including employee onboarding, investors and equity, legal and regulatory work, and vendors—in one place. The product connects with major tools like Carta, Gusto, Mercury and many other services, and can point you to the best place to file worker’s comp claims, send confidentiality letters, and, of course, claim your R&D tax credits ([they view Neo.Tax as the most accurate and most affordable option on the market!](https://www.abstractops.com/r-d-tax-credits)). Their goal—just like Neo.Tax—is simple: to turn an overly complex but valuable part of the business into a streamlined, data-driven, software-enabled, low-error product. ![Neo.Tax Recommends AbstractOps](/_blog-images/neo-tax-recommends-abstractops-img-1.jpeg) For so many startups, operations get brushed aside—not because it’s not important, but because it’s the kind of menial task that’s easy to overlook. By the time startups grow and are ready to raise funding rounds, the lack of financial/operational hygiene often becomes a sticking point that dooms the company. Just as Neo.Tax has solved for R&D Credit filing, AbstactOps has solved for the back office! What AbstractOps is building is especially attractive to our sensibility because it pairs so perfectly with our vision at Neo.Tax. We believe that founders are the fuel for innovation in this country. We think the best ideas come from inspired thinkers and our goal is to make sure they get the money they’re owed to bring that innovation to life. AbstractOps believes the same—their back-office solve is specifically built so that operations will no longer be the timesuck or hurdle that keeps a startup from becoming an innovative company. That’s something we can get behind at Neo.Tax. We’ve used technology to turn a previously annoying and difficult task into a simple process; AbstractOps has done the same for onboarding and so many other aspects of the back-office operations. That’s why Neo.Tax recommends AbstractOps. --- ### Six Essential Tax Tips for Your Tech Startup URL: https://www.neo.tax/blog/six-essential-tax-tips-for-your-tech-startup Published: 2022-02-04 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: Founders are driven to create the future, to disrupt a broken system, or to make something new out of whole cloth. It’s not surprising then that for most.. Founders are driven to create the future, to disrupt a broken system, or to make something new out of whole cloth. It’s not surprising then that for most of them, tax season — with its archaic rules and tedious paperwork — is the worst part of the year. Luckily, we at neo.tax are tax guys through and through; we’ve spent decades obsessing over the minutia. And so, we’re here to help make tax season simple, streamlined, and even advantageous for your startup. Our Co-Founder and Head of Tax Stephen Yarbrough has been a corporate tax CPA for over 20 years. He spent most of the 2000s working at PwC, followed by 6 years as a Senior IRS Auditor, before serving as Head of Tax at a startup-focused CPA firm. In 2020, he joined forces with Ahmad Ibrahim to help found neo.tax. These are his six essential tax tips for your tech startup. 1. **Incorporate in Delaware**: If you’re expecting to raise money from venture capital firms or major investors, a Delaware C-Corp Structure is almost always a condition of funding. If you don’t expect to raise money for a long time, there may be other tax-advantageous structures (such as a partnership or LLC). However, be aware: conversion from an LLC/Partnership is more complex than you’d think and can trigger tax for the founders if executed incorrectly. 2. **Get your R&D Payroll Tax Credit**: For tech startups (software, hardware, biomedical, SaaS), the R&D Payroll Tax Credit is the closest thing to “free money” that a company will ever get from the government. Startups with less than 5 years of revenue (or no sales at all!) can earn up to 10% of their R&D spend back in payroll tax credits. R&D spend includes wages to engineers, payments to U.S. contractors and cloud computing (AWS) costs used towards R&D. This payroll benefit (up to a max of $250k/yr) is eligible for startups for a max of 5 years and only eligible on originally filed tax returns (you can’t amend to get this payroll benefit retroactively), so don’t miss out! The credit can extend your runway by dropping your total payroll costs by 6+% each pay period until the credit is used up. With the help of neo.tax, you can file for your R&D Payroll Tax Credit in just 15 minutes. 3. **Get Compliant with Payroll Taxes**: Big problems can pop up if founders draw funds as “loans” and neglect setting up and paying payroll taxes. Getting compliant doesn’t need to be a painful process; automated services like Gusto make this a breeze. 4. **Collect Forms W-9 and Issue Forms 1099**: Make it a point to collect W-9s BEFORE making a single payment to an outside contractor and to issue Forms 1099 each January. If you fail to receive a vendor’s taxpayer ID, or SSN, with a Form W-9 (or a foreign tax exemption declaration with form W-8 BEN), your company may be liable for up to 24% backup withholding tax with respect to those payments. On top of that, the failure to file Forms 1099 has become costly — over the past few years, penalties have skyrocketed from $25 to $1000 for each Form 1099 you fail to file! 5. **Hire an Accountant with Tech Startup Experience**: Startups are “small businesses,” but they often have multinational corporate tax challenges due to the nature of their work. This means a small-business accountant may not be the right choice for the complicated work: we can help with the R&D tax credits, but these accountants may not be familiar with forms related to foreign investments or investors. Startups are often penny wise and pound foolish when it comes to tax compliance. Saving a few hundred dollars on an accountant upfront isn’t worth the backend cost, especially if you have any business or owners outside the United States. Failure to file some international information returns can result in mandatory $25,000 penalties for EACH form missed! Also, small business accountants will likely keep your books on a “cash basis”, when future investors will want to see “Accrual basis” books. It’s easier to set it up right from the start than have to change this in a couple years. 6. **Don’t Make Tax an Afterthought**: This is the hardest piece of advice, but it’s the one that will extend your runway and keep you safe from costly fines down the road. It also can prove essential when you’re negotiating an acquisition down the road. So, invest in an accountant or automated service that you trust. If you’re making a major R&D equipment purchase, your accountant can get you a 50% sales tax exemption in CA. If you’re hiring employees, you’ll need to make sure you’re registered in the state. If you start making sales, you should be verifying that you’re compliant with sales tax collection and remittance. Sales taxes are complicated, but services such as Avalara or TaxJar can link into your current systems and automate the process — thinking about taxes with each major transaction can save you money in the future by avoiding penalties and interest. Fine-avoidance often isn’t enough incentive for a funded startup to get compliant, but this fact should: tax compliance is often a MAJOR area of due diligence when a larger company is negotiating an acquisition. I’ve seen founders lose money or have long delays during an acquisition as they scramble to correct the tax issues they ignored. Believe me: it’s not worth the risk. --- ### The New Way to Finance Your Startup URL: https://www.neo.tax/blog/the-new-way-to-finance-your-startup Published: 2022-02-04 Author: Neo.Tax Category: R&D Tax Credits Summary: Early stage start-up founders need to evaluate a multitude of options when deciding how to fuel their growth. While venture capital is the typical route... Early stage start-up founders need to evaluate a multitude of options when deciding how to fuel their growth. While venture capital is the typical route founders take, fundraising through this way is often time consuming and expensive from an equity and company control perspective. Typically, the alternative then is to go through traditional bank financing, but this also can be difficult as banks often find it difficult to assess a start-ups potential and its associated risks, especially if the business model is nascent or unproven. As a result, there has been a gap in the financing market for non-dilutive funding that is catered towards early stage start-ups. However, there are companies actively working on allowing early stage companies to access non-dilutive capital and neo.tax is one of them. ## Benefits of non-dilutive capital 1. Founders get access to capital they need immediately 2. Founders and existing investors retain company ownership and control 3. Founders can focus on their product and growing the company versus fundraising 4. Reach better alignment to operational needs Accordingly, in this post, we're going to explore four options for non-dilutive financing, including current company offerings and examples. ## 1. Tax incentives including the R&D Credit Tax credits are the most straightforward method to introduce non-dilutive capital into your company. These credits are available for US tax paying companies to take advantage of and are often offered as a way to encourage further investment, innovation and growth for SMBs. One particularly important credit for early stage companies is the R&D tax credit. This tax legislation was passed to encourage US companies to invest in innovation, yet it is often not claimed by start-ups. As a result, start-up oriented tax companies have grown in demand as they look to service young businesses that are dedicating themselves to building innovative technologies. One such company is Neo.Tax which files the R&D credits on behalf of companies in 10 minutes and for an industry low fee of 10% of the credit amount. Neo.Tax was co-founded by an IRS agent of 25 years as well as seasoned entrepreneurs who understand start-up pain points intimately. When choosing a partner, it's important they have the right background and can provide you guidance on an ongoing basis. Neo.Tax is a robust and intuitive product that will soon be able to handle all your tax needs on a cheaper and faster basis. **Example**: If you are eligible to receive a $200,000 tax credit as one of their customers has, you would keep $180,000 of that! It’s free to check if you qualify and can do so here. ## 2. Revenue based lending Annual recurring revenue (ARR) or Monthly recurring revenue (MRR) is income a company can reliably anticipate every year or 30 days. This metric is commonly used among subscription or SaaS companies. As SaaS companies become more prevalent, new forms of lending have emerged which evaluate the companies based on their ARR. Along with churn and renewal rates, ARR (or MRR) helps lenders assess if and how they will extend financing to a business. This type of lending is similar to venture debt, which allows companies to extend their runway without giving up equity. Both Pipe and Capchase offer this type of solution. Their products provide options for recurring revenue companies to get paid upfront for their contracts. For example, Pipe companies (once approved), can offer up customer contracts that can be bid by investors. This allows these companies to ‘realize’ their monthly or quarterly customers all at once, while investors have the opportunity to invest in recurring revenue contracts they previously did not have access to. Capchase offers loans based on a company’s annual recurring revenue minus what is typically a 5 percent to 10 percent discount. Until this type of financing became available, SaaS companies mainly had to rely on debt, dilution, or bootstrapping to run their business. Now, companies can scale without dilution.‍ **Example**: Your company has a customer contract with Microsoft that is worth $15,000 a quarter. Based on the Pipe platform, investors could bid $55,000 for the contract. This would give you the upfront capital you need now, while giving the investors an ability to benefit from your operations via a $5000 discount to the contract. Or you're a company with $10,000 in monthly recurring revenue; Capchase may pay out $108,000 for the total $120,000 ARR in return. ## 3. Inventory based lending Similar to recurring revenue based lending, another option is to get money upfront based on your inventory and sales. Clearco is a provider of such lending options, as they will invest funds for you to pay your inventory vendors. In return, Clearco plugs into your payment system and takes a percentage of sales until it recoups the investment ~ 6%. This type of lending is particularly attractive to e-commerce sites which depend heavily on suppliers. **Example**: If a company is approved for $100K, Clearco would charge $106K and take payment as you make sales. ## 4. Credit cards A business card offers credit for daily and recurring purchases. It’s a great way to extend your runaway as it essentially offers you a continual short term loan. Overtime, you should look to have your credit limit increased as your pool of available credit then also increases. A major differentiator between business cards is whether a personal guarantee is required or not. If it is required, you are putting your personal assets at risk. If you are using a credit card as a way to extend financing, you should avoid cards that require this guarantee. Companies like Brex, Ramp, SVB and many others offer this option and in general are tailored for the needs of start-ups (e.g. offering expense tracking, rewards, and higher limits). ## Conclusion Acquiring the capital necessary to fuel company growth is one of the biggest challenges for founders. While raising money from VCs is a traditional option for start-ups, there are increasing amounts of non-dilutive financing options now available. These options are beneficial to both the companies and its investors, as it allows them to continue operating without ceding equity or spending valuable time fundraising. Founders will find this particularly appealing as they then get to retain their control over a company’s operations while still boosting their growth and valuation. Making a decision on financing is ultimately going to be down to the type of business and what stage of growth the company is currently in. For example, recurring revenue SaaS businesses will be able to take advantage of revenue share financing earlier than deep tech businesses. However, deep tech companies might be able to take advantage of more tax credits as their payroll is more dependent on technical resources. The main takeaway is that **venture funding should no longer be the only focus of a capital raise for companies**. There are many options that are straightforward to take advantage of throughout the lifecycle of a company. Depending on the context of your business, the desire to retain equity and control, and your growth goals, a combination of non-dilutive financing can make a meaningful difference in your financial position. --- ### We Can Help Extend Runway During COVID-19 URL: https://www.neo.tax/blog/we-can-help-extend-runway-during-covid-19 Published: 2022-02-04 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: At this historic and destabilizing moment, the need to save money and extend runway is more important than ever for startups. At neo.tax, we’ve built a... At this historic and destabilizing moment, the need to save money and extend runway is more important than ever for startups. At neo.tax, we’ve built a tax tool that can instantly begin helping you weather the storm. Our automated service completes the R&D tax credit in minutes, saving startups up to $250,000 in payroll costs. That money can be the difference that lets your company continue through this existential moment. **So, start the process right now!** There are a few COVID-related deferrals available and we strive to help guide our customers down the best path for all their tax needs. **The most beneficial and available deferral to ALL businesses is the "Employer Payroll Tax Deferral" under the CARES Act.** There are other incentives, but they are either small or require you to jump through hoops — the Employer Payroll Tax Deferral is something everyone should take advantage of. Each payroll provider will have a list of Covid-19 resources available; usually, enrolling in the Employer Payroll Tax Deferral is as easy as a few clicks. For example, Gusto customers should select the “COVID-19” link and then simply press the "Defer Federal Taxes" button. ![We Can Help Extend Runway During COVID-19](/_blog-images/we-can-help-extend-runway-during-covid-19-img-1.jpeg) However, applying for the Deferral is no reason to put off claiming your R&D Tax Credit with neo.tax. In fact, because the Deferral savings will eventually need to be paid back, the R&D Tax Credit can serve as a helpful buffer; the money you save on payroll each month can be earmarked to repay the Deferral. They say there’s no such thing as free money, but the R&D Tax Credit was made for just that reason — to put money back into the coffers of the early-stage startups that are driving innovation. **Far too many businesses are leaving money on the table; with neo.tax, it only takes 15 minutes to extend your startup’s runway. So why not do it today?** If you have any questions about the R&D Tax Credit or the Employer Payroll Tax Deferral, don’t hesitate to set up a call. Here’s a link to our Chief Tax Officer Stephen Yarbrough's calendar! And to file your R&D tax credit now, click [here.](https://quvys7s58pf.typeform.com/to/c6o13uXY) --- ### Why We Automated Tax Season URL: https://www.neo.tax/blog/why-we-automated-tax-season Published: 2022-02-04 Author: Ahmad Ibrahim Category: R&D Tax Credits Summary: There are scores of things that humans can still do better than computers. But mechanical computers were specifically built to crunch numbers and they... There are scores of things that humans can still do better than computers. But mechanical computers were specifically built to crunch numbers and they’ve only widened the gap on humans in the almost hundred years since. These machines, at their core, are created to demolish problem-sets of rules and numbers. Which is why it seemed obvious for us to create a fully automated tax service: neo.tax. In many ways, taxes are the perfect dataset: they’re a collection of deeply specific, often archaic rules and numbers. For example, the IRS's Publication 970, Tax Benefits For Education is 86 pages long — most families end up missing out on their maximum tuition writeoff. Humans can get lost in the minutia, but a well-trained algorithm can breeze through the data and quickly find the maximum credits for a client. For many startup founders and small business owners, April is the worst month of the year. The tax code is often purposely obscured — it’s why it takes years of schooling and an exam to become a CPA. But what if a machine-learning algorithm could be taught the entire tax code? And what if it was built and trained by the former Head of Tax at Kruze, who also spent seven years at the IRS? With Neo.Tax, we’ve started by solving a relatively simple problem-set: the R&D tax credit. The credit, expanded in 2016 to better serve startups, is far-too-rarely claimed by young tech companies. The 2016 switch meant that the R&D costs could be deducted from payroll tax rather than income tax, which meant, suddenly, thousands of early, pre-revenue startups could get relief for their biggest burn area. We built an algorithm that could pore over a startup’s accounting and payroll information and instantly identify the maximum R&D credit filing. From there, it was simple to automatically create the paperwork for the filing and send it to the client. Computers were built to scan through mountains of data and deliver a clean, concise and correct solution. Neo.Tax has brought that solution to the R&D tax credit. Because the Neo.Tax algorithm is automated, the entire process of filing for the R&D credit takes about 15 minutes for our clients. Human or half-human/half-automated services charge between 15% and 25% for the same service — for a problem-set like this, a human touch makes the process take longer and cost more, without actually making the results more accurate. Because our process is fully automated (though each return is double-checked by our ex-IRS cofounder), we thought it only fair to charge just 5% of what you save. Our clients are often pre-revenue and the credit can extend the runway for burgeoning companies. Taxes are often the worst part of running a business. They’re also the ideal problem-set for computers to power through. That means they’re the perfect thing to automate. Neo.Tax is starting with the R&D Tax Credit, but we plan to continue honing our algorithm. Eventually, much of tax season can be automated. A mess of numbers and pages of rules? This is what computers were built for. ## Case Studies ### Mercury — How Neo.Tax helped Mercury claim a higher R&D Credit with confidence URL: https://www.neo.tax/case-studies/mercury Neo.Tax saved Mercury's controller and engineers weeks, increased the R&D credit YoY, and deliver a “more accurate, higher quality” study. > "“Neo.Tax really understood what our problems were and solved them.”" — Christine Andrews, Controller, Mercury Financial ### **The Challenge:** Mercury has grown at lightning speed by prioritizing technological innovation. Mercury provides startups and ambitious companies banking* and software to power their financial workflows. Mercury continues to create new products but this rapid growth created a complex challenge for controller Christine Andrews. She needed to scale their R&D credit and ASC 350-40 processes to fit the company’s trajectory without burdening the engineering team that is driving the innovation. On the tax side, Mercury claimed a substantial R&D credit, but Christine wanted stronger documentation backed by granular data to make her confident the credit would withstand audit. On the accounting side, Mercury needed to start reporting on internally developed software (ASC 350-40) at a detailed level for their first year of audited financials. Both processes needed input from Mercury’s engineering team, but Christine wanted to improve on the traditional approach of creating separate, mostly redundant processes that wasted engineers’ time. “We wanted something where there’s actual supporting documentation rather than trying to guess someone's percentage of time,” Christine says. “But also we didn't want to go the direction of time tracking either.” At previous companies, Christine found the traditional approach of quarterly reviews with product leads inefficient and inaccurate. It took too many meetings to get everyone on the same page and the product leads often lacked detailed context about what engineers worked on. “For both capitalized software and the R&D tax credit, it can't just be accounting making assumptions,” she says. “You really have to get the data from the actual managers who truly know and oversee these projects and individuals.” She wanted a process that incorporated real-time data that was convenient and easy to use. ### **The Solution** _Neo.Tax’s system for automating the R&D credit & ASC 350-40 from Mercury’s R&D team’s existing data — saving time and money and creating audit-ready substantiation_ Christine partnered with Neo.Tax to solve both problems at once. Using NeoTax’s unified project system and Linear integration, Mercury leveraged their project management data to streamline both the R&D credit and ASC 350-40 processes. First, Christine used Neo.Tax to go back and identify all their capitalized projects for the prior year and calculate time spent per project for each engineer. For example, Neo.Tax identified Mercury’s newly launched Personal Banking product as a R&D project and the engineers who worked on it with an estimated percentage of time. Then, Mercury leveraged Neo.Tax’s unified system to complete their R&D credit process–in record time! Christine used Neo.Tax’s system to condense the granular capitalized software projects into R&D credit projects and to generate the detailed documentation to support their qualification. “The ability to do granularity for cap software and then copy that over to leverage the work, but at a higher level for R&D tax credit, made it really easy to use,” she says. ### **Results** _Saved Weeks of Engineering+Accounting Time_ Christine estimated it took each Engineering Manager _less than an hour_ to review. “We got really good feedback from engineers who have gone through this at prior companies, and they were very thankful with how easy it was to use,” she says. “I did not have to have one meeting, one phone call with anyone.” Since the Engineering team had already reviewed their project time for ASC, the R&D part was a breeze. “Again, it probably took them less than an hour,” Christine says. _Smooth Financial Audit_ The granular projects and level of detail made for a smooth audit too. “[Our auditors] really liked that it was based on the tickets and that there was a clear calculation that they could follow.” _“More accurate, higher quality” Study vs CPA Firm_ Neo.Tax’s AI system automatically created a detailed 500-page study, substantiating the four-part test for each project from Mercury’s linear tickets. “Having Neo.Tax AI do the work and then me review really reduces my time and also creates a more accurate and quality product,” Christine says. “When we got the final PDF, it was over 500 pages. That's a lot of support. That's a lot of backup. And I think that's exactly what you need, when you have over 200 people and over 50 projects, to really have that level of granularity and backup across all the four requirements for R&D tax credit.” ### **The Takeaway** Christine sees these benefits only growing quarter after quarter as Mercury continues to scale. “Having myself, our engineers, and the product teams use the same system throughout the year for cap software, and then annually for R&D tax credit, and not changing the process, besides getting even more accurate, creates efficiencies,” she says. “Neo.Tax really understood what our problems were and solved them.” _*Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust, Members FDIC._ --- ### Modern Treasury — How Neo.Tax helped Modern Treasury streamline its R&D tax process URL: https://www.neo.tax/case-studies/modern-treasury A process that had taken dozens of hours and repeated calls with the tax preparers became nearly effortless for Modern Treasury controller Jen Yahiku and her team. > "“What's nice is that Neo.Tax streamlined everything in a platform where you could also review and figure out the output reasoning based upon actual hard data. Then, my tax firm could just hit the ground running with the completed 6765 and supporting workpapers.”" — Jen Yahiku, Controller, Modern Treasury In 2023, [Jen Yahiku](https://www.linkedin.com/in/jennifer-y-0b1b0513/), controller at Modern Treasury, approached Neo.Tax about helping file the payment operations software company’s R&D credit. Since Modern Treasury already used Neo.Tax for Software Capitalization, she hoped to “utilize the efficiency”, saving time and money for the growing Series C company. “I wanted to streamline the process,” Yahiku says. Neo.Tax went through the data of 165 employees, determined 101 of them worked on R&D (and how much time each spent performing R&D), and did it faster and more efficiently than Modern Treasury’s previous service provider. Here’s how: ### **The Problem:** In previous years, Modern Treasury would hand off their R&D credit to their tax preparer. In reality, that meant they’d have to start from scratch collecting data, and much of the work would come back onto Yahiku’s plate. “They'd ask me to break down the P&L by department, making sure that they have all the details of the individuals who worked in R&D and had access to their salary information,” she says. “Then, they would have to create their own set of workpapers in order to substantiate it.” Suddenly, Yahiku found herself paying for a third-party service and still doing much of the work of sorting through and delivering relevant data. There’d be calls with a specialized R&D group, and she’d spend hours answering questions so that they could populate the filing on the tax return. **“It was almost like I had another project to manage — all while making sure we had the tax return filed in time as well,” she says.** Modern Treasury’s finance team is “very lean,” so the wasted time was especially costly around tax season. “Anything I can save in terms of time and effort is greatly appreciated,” Yahiku says. ### **The Neo.Tax Solution:** Because Modern Treasury already used Neo.Tax for its software capitalization processes, creating an R&D tax filing was extremely simple for Yahiku. In less than an hour, she linked Modern Treasury’s project tracking data to the Neo.Tax platform and watched as the R&D data instantly populated the filing. **“What's nice is that Neo.Tax streamlined everything in a platform where you could also review and figure out the output reasoning based upon actual hard data,” Yahiku says. “Then, my tax firm could just hit the ground running with the completed 6765 and supporting workpapers.”** What had taken dozens of hours and repeated calls with the tax preparers was now nearly effortless for Yahiku and her team. “My tax firm was actually impressed that you had a PDF of the actual tax form that was already prepared,” she says. “They were like, ‘Well, if you have this, you don't have to answer all our questions.’” ### **The New Way for Modern Treasury:** Yahiku has seen how quickly the engineering team has bought into the Neo.Tax system. In that first year, she found she’d have to have a quick call with a team that wasn’t focused on Linear tracking; by 2024, “I didn't run into any sort of issues,” she says. “I don't even think I tapped engineering once.” As any controller or tax manager knows, that’s a massive change: from both a time-saving and headache-relieving perspective. “It was very helpful, because usually if I do have to consult with engineering, then I have to find time on the calendar and hopefully it doesn't get canceled or moved,” she says. “Now, I can just verify it on my own, because we had the information that was already utilized from the platform on the capitalization side.” Yahiku had signed up in 2023 unsure of how Neo.Tax would work for Modern Treasury. But she’s been pleasantly surprised by how much faster and more substantive their R&D filing has become. **“Before 2023, we did it manually and it wasn't on a project-by-project basis. It was more like: ‘Who was on R&D projects?’ and then trying to figure out the numbers to put on the tax return,” she says. “With Neo.Tax, there's much more detail behind it. There's something to substantiate it off of.”** “It’s nice to have something to stand on,” she continues, “rather than just being like, ‘Well, I guess we gotta go ahead and pay for an R&D study soon.’” --- ### Octane — How Neo.Tax helped Octane file an R&D Credit they could trust URL: https://www.neo.tax/case-studies/octane “Even with the implementation and the time spent learning how to use the software," VP of Tax Karin Barratt says, "filing this first year took at least 50% less time." > "“If you look at the engineers’ calendars, it’s crazy. They’re booked every hour. They’re too resource constrained to be doing the R&D study. And they have more important things to focus on.”" — Karin Barratt, VP, Tax at Octane When VP of Tax Karin Barratt started at Octane (Octane Lending, Inc.) in 2021, she realized the company had never claimed the R&D Tax Credit. “I was like, ‘Wow! What we’re doing here definitely qualifies,” she tells us. As the credit could lower Octane’s effective tax rate, it seemed worth their while. So, Karin got in contact with a firm who did a look-back credit. But as she watched the process, the whole thing began to feel flimsy. Much of the filing was based on time-consuming interviews with engineers, who were asked to estimate the percentage of their time that was spent on R&D quarters or years before. Most of the time, they guessed that 100% of their work was spent on R&D. Last year, Octane instead used Neo.Tax to claim their R&D tax credit. The process saved time and stress for Karin and the engineers by linking directly to their contemporaneous Jira data, which delivered an audit-proof filing that took weeks instead of months. ### **The Problem:** In the years since that first look-back credit, things had not gotten simpler for Karin. The R&D credit filing process still felt inexact, and it was extremely burdensome for the extremely busy engineering team. **“I spent the whole summer trying to make something out of nothing,” Karin explains. She would ask the engineers to export all the issues of Jira, and then try to allocate their time on an issue by issue basis. “Then I had to take all those issues from Jira and try to roll them up into business components.” ** “I’m not an engineer and the engineers are so busy,” she continues. “And then at that point you're like, ‘Well, does this make sense?’ So you’re going back and taking more of the engineers’ time.” In 2024, a Big 4 firm recommended that Octane do an R&D Study to make sure there weren’t any Uncertain Tax Positions (UTP). “I wasn’t really that happy with the first study that we did. It happened a year after the engineers had already done the work. It was not based on contemporaneous documentation,” she remembers thinking. “I was like, ‘There has to be another way to do this.’” ### **The Neo.Tax Solution:** So, last year, Karin got in touch with Neo.Tax, with the goal of reducing the burden on her engineering team while filing a credit that could stand up to an audit by the IRS. Neo.Tax’s AI connected seamlessly with Octane’s Jira data and delivered an R&D Credit filing based completely on contemporaneous data. “Without contemporaneous data, everyone’s playing Russian roulette,” Karin says. “So I think it’s just super, super important.” “Everybody puts their returns on extension. It’s summer and you’re going back to the engineers and asking them what they did the prior year,” she continues. “Who’s going to remember?” Now, everything was automatically uploaded from the Jira data the engineers had created as they worked on the projects throughout the year. There were no more calls to ask managers to export and sort Jira data, no more followups asking for estimates, and no more back-and-forths on what does or does not qualify based on the 4-Part Test. Switching to Neo.Tax saved massive amounts of time and stress for the engineers. **“If you look at the engineers’ calendars, it’s crazy. They’re booked every hour,” Karin says. “They’re too resource constrained to be doing the R&D study. And they have more important things to focus on.”** “On a scale of 1 through 10, the burden on the engineers was an eight or a nine,” she says. “Now I really feel like it’s a three.” ### **A More Exact Filing For A More Exacting IRS:** What had taken a whole summer now takes a few weeks. She’d prepared herself for a time-consuming onboarding process, but Karin — who continually stresses that she’s “not a tech person” — managed to master Neo.Tax’s software in no time. **“Even with the implementation and the time spent learning how to use the software, filing this first year took at least 50% less time,” she says.** But it’s the years going forward that Karin is most excited about. The IRS has changed the R&D credit filing process, asking [taxpayers to list each and every qualified business component on the new Form 6765 Section G](https://www.neo.tax/blog/how-neo-tax-tackles-the-new-reporting-requirements). “For this year’s R&D Tax Credit form, you only had to put in the number of business components. Next year, you’re going to have to actually write out each business component,” Karin says. “I don’t know how people are going to do that without software.” With Neo.Tax, she already has a system that groups all of Octane’s Jira data into business components and explains, in clear language, why or why not each qualifies for the credit. “It connects to Jira, so it’s happening contemporaneously, and then the AI buckets everything into business components,” she says. “It makes sense and it just simplified the whole process. “I've been through a lot of software where they promise the world and you’re never really satisfied with it,” Karin continues. “But I have to say: I really don’t have anything negative to say about Neo.Tax. I’m super, super happy.” --- ### Red Ventures — How Neo.Tax delivered Red Ventures an R&D solution that can scale URL: https://www.neo.tax/case-studies/red-ventures Senior Tax Accountant Chase Pierce explains to other tax teams at rapidly growing companies: “Neo.Tax is a tool that can cut your workload at least in half.” > "“We would get on a call with a person, we’d talk through, ‘Okay, your project, does it meet X? Does it meet Y? Does it meet the 4-Part Test?’ Now, that is all done at the touch of a button.”" — Chase Pierce, Senior Tax Accountant at Red Ventures ### **The Problem:** Red Ventures has grown rapidly these last few years and every part of the digital media company touches R&D to some degree. Last year, Senior Tax Accountant Chase Pierce realized that the old way of filing an R&D tax credit was becoming impossible for his small team. The process could not scale along with the company. Beginning in September and continuing through mid-October, the tax team would complete four to five hour-long interviews every single day. They’d need to talk with engineers and team leaders on every single Red Venture team, and often would have to return for followups with certain interviewees. “It could be very time intensive,” Chase says. “And then, obviously, after that, you had the data collection, you had to do any follow ups if you didn’t get the right substantiation documents or needed confirmation on time surveys.” The process that began each fall dragged on for months and months. “If we started in September with the interview process, it could take us through January, February, sometimes even March to get our whole process wrapped up.” When Chase heard about Neo.Tax, he was intrigued. Red Ventures used Jira to track their project management; there had to be a way to take advantage of the contemporaneous data to streamline the process. Here’s how switching to Neo.Tax saved Chase and his team five months of work, saved Red Ventures’s engineers hundreds of hours of interviews and data collection, and delivered an even more substantive R&D credit filing. ### **The Neo.Tax Solution:** The big lightbulb moment for Chase happened right away when he started the R&D filing process with Neo.Tax. In previous years, after hundreds of hours of interviews, he’d have to return to each of the 30-50 team leaders to ask for time surveys and documentation and writeups for all of their projects. Because [Neo.Tax’s LLM syncs directly with the Jira data](https://www.neo.tax/blog/how-neo-tax-solved-the-r-d-qualification-process), that “now all just flows basically at the touch of a button,” Chase explains. He realized that he’d not just saved Red Ventures [the 300 to 800 hours of time](https://www.neo.tax/blog/how-neo-taxs-ai-will-save-controllers-and-engineers-hundreds-of-hours-this-coming-tax-season) that engineers and team leaders were spending on phone calls with his team; he also eliminated the many more hours managers were spending chasing the data and documentation. “Not only is it our time; there’s a mirrored amount of time on the business side,” he explains. “The engineers and the project managers have to spend a lot of time collecting stuff for us, talking to us, etc., etc., whereas now, a lot of teams, we don't even have to reach out to them at all, and for others, it’s just, ‘Hey, does this look like it makes sense?’” “It’s a quick yes or no,” he continues. “Hopefully it’s a yes, and then we don't have to go any further. And if it’s a no, it’s usually just a quick call.” It’s still hard for Chase to believe, but a process that had taken six months and cost Red Ventures a sizeable direct investment (in the form of payment to a third-party R&D contractor) and an even more sizeable indirect investment (in the form of hours of wasted for engineers and project leads), now took Red Ventures a single month to complete. “It used to be that each engineer or manager had to enter the interview and bring forth their own R&D data,” he says. “Now, it’s much more about verifying if this all looks right.” ### **Audit-Ready and Substantiated:** The time savings matters for Red Ventures in terms of productivity, but Chase and his team would never [sacrifice substantiation when it came to their R&D filing](https://www.neo.tax/blog/how-does-neo-taxs-ai-work). So, before switching their process over to Neo.Tax, they tested the output. “We did comparisons to our previous results, and we said, ‘Okay, this matches what we think it should be saying based on what we know about the credit,’” Chase says. “The fact that it does it automatically is a huge win.” “It gives us as good of a result — maybe even better, in some cases,” he continues. And to get there is night and day compared to their old process. “We would get on a call with a person, we’d talk through, ‘Okay, your project, does it meet X? Does it meet Y? Does it meet the 4-Part Test?’ Now, that is all done at the touch of a button.” For Chase, the most exciting part is that [he feels audit-ready with Neo.Tax](https://www.neo.tax/blog/an-update-on-kyocera-and-what-it-means-for-you). If Red Ventures had been audited in the past, he’d have to track down a team leader who knew about the specific project to help him find the relevant tickets that the IRS requested. “Whereas Neo.Tax gives it to you like that already,” he says. “If I get audited and they ask for the source data for this project, I already have a list. If I have Jira, I can go do it myself. I don’t even need a person to help me.” The ability to have that data available makes a massive difference when it comes to Chase’s peace of mind. The other thing that helps peace of mind is that Neo.Tax is always available for a specific custom fix for any issue that he and his team may run into while getting their R&D credit filing prepared. “You all are always willing to work with us on solutions if we run into issues. You all are always willing to bend over backwards, to be like, ‘How do we make this work? How do we get you your deliverable?’” he says. “You guys really give the white-glove service to us.” So, Chase explains to other tax teams at rapidly growing companies, “If you’re like, ‘We need to be more efficient about our R&D credit,’ or if you just have a lot of volume that's involved in your R&D credit, Neo.Tax is a tool that can cut your workload at least in half.” “I would give it a big, big recommend.” --- ### Notion — How Notion Scaled Its R&D Credit Documentation as Engineering Projects Tripled URL: https://www.neo.tax/case-studies/notion “My goal was to produce a defensible R&D credit while minimizing disruption to the teams doing the work. You delivered exactly what we needed.” > "“Engineers are busy building products. My goal was to produce a defensible R&D credit while minimizing disruption to the teams doing the work. You delivered exactly what we needed.”" — Katya Ewing, Head of Tax at Notion When Notion’s engineering organization expanded rapidly, the number of R&D projects included in the company’s tax credit study increased from 24 projects to 87 in a single year. Scaling the documentation process without disrupting engineering teams became a priority. By implementing Neo.Tax’s data-driven R&D platform, Notion was able to streamline the traditionally manual credit documentation process while strengthening the underlying substantiation. ## **The Challenge: Rapid Growth in Engineering Activity** Notion’s continued investment in product development meant the number of qualifying R&D initiatives grew significantly year over year. In 2024, the company’s R&D credit study included **24 projects**. By 2025, that number had increased to **87 projects**. Historically, the R&D study followed a structured but manual process: - Reviewing prior-year project - Identifying new development initiatives - Interviewing project managers and subject matter experts - Asking engineers to complete time allocation surveys “We have a lot of the information in our internal documentation systems,” says **Katya Ewing, Head of Tax at Notion**. “But that information exists across multiple engineering tools, and translating it into R&D credit support historically required significant manual coordination.” With the number of projects more than tripling, the traditional approach would have required **30+ interviews with engineering leads and project managers** across the organization. At the same time, IRS expectations for **data-backed substantiation** of R&D claims have continued to increase. Katya needed a process that could scale alongside Notion’s engineering organization while strengthening the documentation behind the credit. ## **The Neo.Tax Solution: Using Engineering Data to Automate Project Identification ** Katya began exploring ways to leverage the company’s engineering data to streamline the R&D documentation process. The Big Four firm engaged to calculate Notion’s credit first analyzed the company’s source code management (SCM) system, but were able to extract only about half of the relevant signals. Katya then asked Neo.Tax to analyze the same dataset. Neo.Tax’s platform used engineering activity data to identify and organize 82 of the company’s 87 R&D projects directly from GitHub activity. The remaining five projects were associated with teams using a different internal system outside the company's SCM. The result was a dramatically simplified workflow. Instead of conducting dozens of interviews across engineering teams, the tax team needed just a handful of targeted conversations to validate edge cases. “Using Neo.Tax reduced time and disruption to engineering and finance by streamlining and modernizing the historically manual R&D process,” Katya says. Overall, the process reduced expected interviews by approximately 60% while saving more than 20 hours of engineering time. ### **Independent Review** Once the R&D study was complete, Katya shared the outputs with Notion’s Big Four advisor, who upon their review of the methodology, signed off on the Neo.Tax analysis. “There’s still value in having a Big Four firm involved in the process,” Katya says. “But the underlying analysis felt more precise because it was built directly from engineering data.” The Big Four team ultimately handled a limited remainder of projects outside GitHub, which required manual follow-up. ### **The Result: A Scalable R&D Documentation Process** Neo.Tax enabled Notion to scale its R&D credit documentation alongside the rapid growth of its engineering organization**. **Katya set out to solve a difficult challenge: documenting three times as many R&D projects while minimizing disruption to engineering teams. And Neo.Tax made that possible. “Engineers are busy building products,” Katya says. “My goal was to produce a defensible R&D credit while minimizing disruption to the teams doing the work. You delivered exactly what we needed.” By analyzing development activity directly from Notion’s source code management system and engineering tickets, Neo.Tax significantly reduced the need for manual coordination and retrospective surveys. “The guesswork was removed from the analysis to a certain extent,” Katya explains. “It was based on the actual tickets, which obviously tightens the result.” The platform’s outputs also strengthened Katya’s confidence in the documentation supporting the credit and boosted audit defensibility of the underlying R&D tax credit study. “The numbers support the story,” she says. “Because the analysis is data-driven, the documentation is much more defensible.” The final R&D study was reviewed by Notion’s Big Four advisor, who ultimately signed off on the methodology and outputs produced by Neo.Tax. “You delivered exactly what we needed,” Katya says. “The methodology made sense to us and made sense to our Big Four firm.” For Katya, the experience demonstrated that a modern, data-driven approach could scale with the company’s rapid growth while maintaining strong documentation standards. “You worked hard and effectively and responded quickly when we had questions,” she says. “I wouldn’t want to do another R&D filing without Neo.Tax.”