See why GGV Capital & 30+ VC firms included Neo.Tax as the only tax company in their inaugural SMBTech50 list. Learn More

Neo.Tax allows startups to benefit from the same tax advantages and planning that Fortune 500 companies have for decades.

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:

You are working to eliminate a technical uncertainty.

You are experimenting via modeling, trial-and-error, simulation or other methods.

The experimentation process relies on a hard science.

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:

Employees (and payroll taxes) in the U.S.

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.

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.

Does my Startup Qualify for the R&D Tax Credit?

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: “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?

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 and communicate with your accountant if there are any dates you are targeting and why. 

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.

#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? 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 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.

This morning, the global venture capital firm GGV Capital announced their inaugural SMBTech 50, 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 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: “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. 

Neo.Tax is Selected for GGV's SMBTech 50 List!

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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?

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 — 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. 

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! 

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)!

How to File a Tax Extension for Your Business

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 to find out how much the IRS owes you!

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.

Neo.Tax raises $10M and partners with Mercury

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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, banking for startups. With this partnership, we will be adding Neo.Tax to Mercury Capital.

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 Announces Partnership with Mercury

Learn all about R&D tax credits and how you can save your clients money. Hosted by Stephen Yarbrough, co-founder and Chief Tax Officer of Neo.Tax. Take this free course on cpaacademy.org and earn CPE credits.  https://www.cpaacademy.org/webinars/a0D2S00000tPqh3UAC

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 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).

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 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: 

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 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. 

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: 

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. 

Status on R&D Capitalization Rules - Keeping it brief.

What? Potential changes to the R&D Capitalization rules

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/

Using each other’s solutions to increase their revenue, Neo.Tax and Meow offer completely secure and easy to use products for startups and small businesses as alternative financing solutions.

Meow enables corporates to earn up to 4% APY on their idle capital. With 1-3 business day withdrawals and complete compliance. For startups who just closed a funding round or companies that are profitable, this is a quick and easy way to easily access high yield opportunities, with complete security, and always in full compliance with US regulation. 

After recently closing our Series A funding round, we discovered Meow. “I interrupted the Meow team 7 minutes into our call and said let’s do this. It’s a no brainer. I can make tens of thousands of dollars without having to do anything,” said Ibrahim, CEO of Neo.Tax.

A typical business savings account has an APY of less than 0.5% and if you want a high yield investment option, they are traditionally not liquid. Meow has revolutionized business savings, making high return savings accounts easily accessible, with complete confidence.

Similarly, Neo.Tax is offering an automated and fast way for startups to prepare their R&D tax credits, with complete confidence. Companies can spend under 30 minutes, get up to $250k with 100% confidence. As Brandon Arvanaghi, CEO of Meow said, "Simply put, Neo Tax is awesome. They helped us claim our credits in less than 15 minutes."

The R&D Tax Credit is available to companies who are investing in R&D activities and using full time employees or contractors based in the US. To be eligible for the R&D Payroll Tax Credit a company needs to have made under $5M in gross receipts (revenue, interest, capital gains) last calendar year, and made revenue for less than 5 years.

Taxes and quick don’t feel like they should be in the same sentence, but Neo.Tax is proving otherwise. Neo.Tax was created by a Stanford PhD in Machine Learning, who automated the brain of a former IRS Agent and productized by a former Intuit product manager. 

Easy Ways for Startups to Extend their Runways

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!

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:

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!

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!

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!

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 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 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.

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.

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!

We’ve partnered with some amazing companies to give our customers all the tools they need to grow their startup!

Building a Brighter Future with Our Partners

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.

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.

We Can Help Extend Runway During COVID-19

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.

Founders get access to capital they need immediately

Founders and existing investors retain company ownership and control

Founders can focus on their product and growing the company versus fundraising

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.

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.

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.

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).

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 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.

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.

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.

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.

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.

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.

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!

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.

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.

Six Essential Tax Tips for Your Tech Startup

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 fromAbstractOps, 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!). 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.

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.

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:

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