Over 100,000 US taxpayers claimed more than $12 billion in federal R&D tax credits in 2017 for work their companies performed on a day-to-day basis. While there’s no question that large, Fortune 500 companies account for a significant portion of the overall research performed and the credit dollars claimed each year, it’s important to note that the R&D credit isn’t limited to large companies with established R&D departments.
 
In fact, Congress has taken action over the past five years to expand the amount of credits available to small and medium-sized companies and business owners.
 
There’s no limit on the number of dollars available to US taxpayers that qualify for the R&D credit, and millions undoubtedly go unclaimed each year. Regardless of industry, any company that develops new or improved products, processes, or software could qualify under the US tax code.
 
The R&D Tax Credit is one of the best opportunities for healthcare businesses to substantially reduce their tax liability. Many of your daily activities may qualify for federal and state tax savings high enough to allow you to hire new employees, invest in new products and care modalities, and grow your practice.
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What is the R&D Tax Credit?

 

The Research and Development Tax Credit is a government-sponsored tax incentive that rewards companies for conducting R&D in the United States. The credit was implemented to incentivize innovation throughout the economy and to keep technical jobs here in the U.S.

However, what constitutes R&D with regard to the credit is much more expansive than business owners realize, with activities related to applied sciences and other technical projects qualifying companies from numerous industries.

The R&D Tax Credit is for businesses of all sizes, not just major corporations with research labs – and many companies are eligible, with an expansive list of activities qualifying for the credit.

What Qualifies for the R&D Tax Credit?

 

If your company does any of the following, your business likely qualifies for the R&D Tax Credit:

  • Develops or designs new products or processes

  • Enhances existing products or processes

  • Develops or improves upon existing prototypes and software

How do I claim the R&D Tax Credit?

 

A number of factors go into claiming the credit, but the potential savings on the table make exploring the credit a worthy investment. Since the credit may be claimed for both current and prior tax years, companies can benefit from documenting their R&D activities to ensure they are positioned to claim the credit in both situations.

To claim the credit, the taxpayer must contemporaneously evaluate and document their research activities to establish the amount of qualified research expenses paid for each qualified research activity. While taxpayers may estimate some research expenses, they must have a factual basis for the assumptions used to create the estimates.

A Healthcare 

R&D Tax Credit Example

A dental practice invests in multiple projects designed to streamline care and treatment processes. 
SALARY & WAGE EXPENSES
Including doctor and staff time, this is often the largest component; (1) W-2, Box 1, for research, direct supervision, direct support
$242,000
THIRD-PARTY EXPENSES
Performed by non-employees and contractors (IT installers are one example); 65% of contract research expenses may be eligible
$12,000
SUPPLY EXPENSES
Non-depreciable, tangible personal property used in development activities, generally consumed or destroyed during process
$43,000
TOTAL R&D SPEND
$297,000
FEDERAL CREDIT AMOUNT:
$34,720.00*
*Dr. Tax Credit is often able to find retroactive tax benefits for most doctors, resulting in 2-3x additional total tax benefit. 

R&D Tax Credit FAQs

How do I know if my practice or lab does R&D?


If you own a practice or lab, odds are you regularly engage in streamlining your processes and upgrading your equipment. Your practice has wage or other expenses related to the development of new or improved products and likely has qualifying R&D activities.




Why haven’t I heard of this?


Many companies were not eligible to receive a current benefit until the PATH Act was passed in 2015. And once passed, not a lot of companies heard about it. Even companies that did know about it failed to pursue it, due to complexity and time constraints. We offer a solution that focuses on healthcare, simplifies the process, and maximizes ROI.




What’s the benefit?


Simply put, the R&D tax credit creates money that goes back in your company’s pocket to fuel further innovation and growth. Estimate your R&D credit with our quick calculator. Typically 7-16% of qualified expenditures, the credit can be used to offset: Income taxes if you are in a taxable position. Alternative Minimum Tax (AMT) if you have less than $50 million in average revenue for the 3 preceding years from the tax year, and you owe AMT in the current year. Employer portion of social security taxes up to $250,000 each fiscal year, allowing qualified small businesses to receive the benefit regardless of profitability.




Do I receive money one time or every year?


You receive money every year you are eligible.




How does pricing work?


Our pricing is built to fit your business and designed to reflect the efficiencies of our process. Practices pay a small base fee plus a percentage of their credit. For new practices, we offer a special pricing option.




How has the R&D Tax Credit expanded over the years?


Since it was first put in place in 1981, the R&D Tax Credit has gone through a gradual evolution over time, with new legislation, regulations and judicial precedent expanding the number of businesses that can benefit from the credit and the savings that can be accrued through this incentive. The most impactful changes have actually occurred within the last two decades. In 2003, the Discovery Rule was removed, meaning that research activities no longer had to be “new to the world”, but instead “new to the taxpayer” – a standard that is much more favorable to taxpayers. In 2015, the Protecting Americans from Tax Hikes (PATH) Act not only made the R&D Tax Credit permanent, it modified the credit for the benefit of small and mid-size businesses and opened up its availability to startups.




Can the R&D Tax Credit be used to offset the Alternative Minimum Tax?


As a result of the PATH Act, “eligible small businesses” (defined as businesses with an average of $50 million or less in gross receipts over the past three years) may claim the federal R&D Tax Credit against their Alternative Minimum Tax (AMT) liability beginning in 2016. Additionally, as a result of the Tax Cuts and Jobs Act (TCJA) of 2017 removing corporate AMT and loosening individual AMT restrictions, the credit has become further accessible to U.S. businesses.




How does the R&D Tax Credit’s “Startup Provision” Work?


Startups and small businesses may qualify for up to $1.25 million (or $250,000 each year for up to five years) of the federal R&D Tax Credit to offset the Federal Insurance Contributions Act (FICA) portion of their annual payroll taxes. To be eligible, a company must: - Have less than $5 million in gross receipts for the credit year - Have no more than five years of gross receipts





 

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