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Winning Back Opportunities: Essential R&D Tax Credit Updates Every Business Must Know

by Ashwini Vasudeva

Staying ahead in the innovation race means staying informed about the latest tax policy changes. Recent updates to Section 174 cost amortization, R&D tax credit reporting, and refund claim requirements are business game-changers. Here’s a closer look at what these updates mean and how your business can stay compliant while maximizing opportunities.

Section 174: R&D Cost Amortization Rules

Under the Tax Cuts and Jobs Act (TCJA) of 2017, businesses must capitalize and amortize R&D costs over five years (domestic) or 15 years (foreign), starting from January 2022. These changes, particularly impactful for partnerships and companies with historical losses, demand close attention.
What’s New?

  1. Proposed Regulations: Issued in September 2023, with procedural guidance in December 2023
  2. 2023 Tax Year: No further updates anticipated

Your To-Do List:

  1. If you’ve already adjusted for Section 174, keep up compliance
  2. Work with your advisors to review and, if needed, amend prior-year filings
Proposed Updates to R&D Tax Credit Reporting (Form 6765)

The IRS has proposed substantial revisions to Form 6765 to enhance reporting clarity. These changes will roll out with the 2024 tax year and expand further in 2025.

What’s New?

  1. 2024: More detailed reporting on methodology, business components, and substantiation
  2. 2025: Anticipated expansion of reporting requirements (draft instructions expected in December 2024)

Your To-Do List:

  1. Start gathering detailed documentation now to avoid filing delays
  2. Collaborate with advisors to ensure seamless compliance with the new reporting standards
Simplified Rules for R&D Tax Credit Refund Claims

The IRS initially introduced strict requirements for research credit refund claims in October 2021, creating headaches for many taxpayers. The recent July 2024 update is a breath of fresh air, simplifying these requirements.

What’s New?

  1. FAQ Updates: Specific employee data requirements have been reduced
  2. Form 6765 Alignment: These updates streamline compliance with the proposed reporting changes

Your To-Do List:

  1. Review the updated FAQs to refine your refund claim processes
  2. Align your documentation and filing processes with the latest Form 6765 requirements
Plan Ahead to Maximize Opportunities

Keeping up with R&D tax policy changes is about optimizing your tax strategy to fuel innovation. Here’s how to stay ahead:

  1. Monitor Developments: Assign your financial team to track updates regularly.
  2. Collaborate Early: Engage trusted advisors to assess and adapt your tax strategies
  3. Proactive Preparation: Early action ensures smooth filings and compliance

Astute’s expert team is ready to guide you through these complexities and help you maximize R&D tax opportunities. Contact us today to explore how we can help you foster innovation while staying tax-smart!

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AnnouncementsBudgeting & ForecastingInternal AuditIRS RequirementsNews

New Section 174 Mandatory Capitalization Regime

by Ashwini Vasudeva

“I believe in innovation and that the way you get innovation is to fund research and learn the basic facts.” – Bill Gates

It has always been an innate belief of policymakers that investment in research and development helps develop new products and technologies, stimulates our economy, promotes job growth, and helps us compete on a global front.

Thus, the R&D Tax Credit outlined in Sec. 41 of the Internal Revenue Code incentivized expenditures on qualified research activities.  This spending had a very large and positive influence on the shaping of technological development, research, and innovation in the U.S.

The 2017 amendment in the tax code section 174, though, requires companies to amortize their R&D costs over a period of five years, beginning in 2022, for research performed in the U.S., and over 15 years for research performed outside the U.S. This sent shockwaves through businesses that stood firm in the longstanding belief that ‘R&D is the basis of future growth.’

The reduction in the outflow of cash into taxes due to the R&D Tax Credit, that businesses had become accustomed to, has now been replaced by a benefit spread thin over the course of 5-15 years. In the expert opinion of industry stalwarts, this could prove to be a major dampener of the enthusiasm that was once ignited to encourage innovation and spending on R&D activities.

In light of the ramifications of the 2017 amendment and with future of advancements in Science, Technology, Engineering, and Medical research in mind, there is an effort to revive the former R&D tax credit rules. In this push, lawmakers are fighting to remove the amortization requirements so that qualified efforts are honored within the same financial year.

The Senate has reintroduced a bill that would attempt to roll back the 2017 provision in an attempt to restore same-year R&D tax credit benefits. The bill also looks to expand the eligibility for this refundable research tax credit by gradually raising the credit cap for small businesses and startups.

However, it is not clear if and when this Section 174 capitalization provision will be deferred by Congress in 2023. This presents a challenge as taxpayers begin to determine its impact on 2022 taxes and financial statements.

Considering some of these scenarios, how does a taxpayer best approach this uncertainty to avoid significant disruption?

It is recommended that taxpayers reassess their tax planning strategies when it comes to the taxability of R&D tax credits and section 174 applicability.

To put your mind at ease and ensure the benefits to your business are maximized, seek advice from a trustworthy expert who has a thorough understanding of the current laws around tax credits, including the R&D tax credit. At Astute, we are passionate about helping businesses thrive. We have uncovered opportunities for many businesses to bring an impactful amount of money back into their business and we would love to do the same for you.

Finally, all we can say with certainty now is “Trust the wait, embrace the uncertainty… when nothing is certain, anything is possible!” – Mandy Hale

Disclaimer:
The information contained herein is of a general nature and is not intended to address the circumstances of any individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice and after a thorough examination of the situation.

For case specific situation appropriate studied opinion/ advice: please contact Astute.

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Employee Retention Tax Credit for Start-ups and Other Challenging Circumstances

by Ashwini Vasudeva

As tough as the pandemic was for all, no one can deny that for those who launched a new business during the pandemic, working through the COVID-19 pandemic aftermath has been a herculean task.

The American Rescue Plan acknowledges that starting a company at the onset or during the pandemic was extremely challenging and provides these companies an opportunity to hire and retain their employees. For the purpose of availing the Employee Retention Tax Credit (ERTC), companies founded after February 15, 2020, are called “Recovery Start-up Businesses.”

ERTC of $7,000 per employee can be claimed if a business pays at least $10,000 or more to the employee in the eligible time periods, provided they satisfy the following conditions:

  • The organization began carrying on a trade or business after February 15, 2020
  • The average annual gross receipts for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the ERTC is determined do not exceed $1,000,000
  • The business is not otherwise eligible for the ERTC due to suspended operations or a gross receipts decline

As a Recovery Start-up Business, they are eligible to receive up to a maximum of $50,000 of ERTC per quarter in the third and fourth quarters of 2021.

As a new business with unique challenges, it is imperative to maximize the benefit extended for ERTC, however, you need expert advice and an in-depth analysis of your situation to do this correctly.

ERTC for far-reaching adversities inflicted by the pandemic

Apart from start-ups, there could be additional unique situations that may raise questions on ERTC eligibility.

One such circumstance could include businesses that experience far-reaching impacts of COVID-19, despite no major decline in revenue.

Simply put, circumstances might be present in which a business’ revenue has not declined as outlined within the provisions of the CARES Act, but other aspects of the business have been deeply impacted, such as:

  • Disruptions in the Supply chain due to COVID-19 restrictions
  • Time spent cleaning and sanitizing or the need to wear PPE
  • Shifting hours of operation to increase facility sanitation
  • Delayed or canceled projects due to COVID-related disruptions
  • Limitations on the number of people allowed in a room or building
  • Inability to attend normal networking events
  • Disruptions to your sales force’s ability to function normally
  • Reduction of the services or goods offered to customers
  • Reduction in hours of operation

These and similar factors have been detrimental to businesses during and after the pandemic and play a major role in determining your business’s eligibility for the ERTC.

With the multitude of possibilities and the finer points that make your business eligible, claiming this credit is complex and confusing.

To avoid errors in your ERTC application that could prevent you from receiving this tax credit, it is best to consult with an expert to help you through the process.

Time is limited to avail the ERTC. Reach out to Astute today to determine your eligibility and apply correctly. Thank you for retaining your employees through the pandemic.

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Employee Retention Tax Credit (ERTC): The only COVID-related assistance that is still available in 2023 and through 2024

by Ashwini Vasudeva

Have you missed the boat on the ERTC? Or can you still get the benefit by filing claims?

Apparently, it is not too late. In fact, the ERTC is the only benefit that can be claimed retroactively until 2024. Along with EIDL and PPP as financial assistance packages provided, the ERTC was one of the benefits provided under the Coronavirus Aid, Relief and Economic Security Act.

However, the ERTC is the only benefit that can be availed for eligible businesses in 2023, and this will continue through 2024. Introduced in March 2020, the ERTC was a sunset provision with aid expiring in September 2021, and for certain businesses in December 2021.

Nonetheless, the IRS Notice 2021-49 clarifications issued provided a beacon of light that stated that ERTC benefits can be claimed retroactively till 2024. Businesses have three years after the program ends to look back at wages paid from March 12, 2020 to October 1, 2021, to determine eligibility and claim this benefit by filing through payroll taxes.

This gift of time can prove to be a new lease of life for small eligible business owners who may have previously missed this opportunity and can now claim or revise their form to claim the benefit.

How do you apply?

The only way to claim the ERTC now is by filing payroll taxes retroactively and amending the relevant tax forms. This requires diligence and utmost professional care to ascertain eligibility and maximize the benefit.

What is the eligibility criteria?

Eligibility criteria is slightly different for 2020 and 2021.

The two most critical factors to determine eligibility are:

  • That a business had been fully or partially suspended or compelled to reduce business hours due to the Government order.
  • That an employer has had a significant decline in gross receipts.

There are certain eligibility criteria that may help fetch credit despite unaffected revenue like supply chain disruptions or certain, limited capacity to operate etc.

To unlock the possibility of availing this benefit, Contact Us.

Starting a business at the outset of the pandemic or amidst Covid- 19, was a herculean task.
What is the relief provided to start-ups then?

Can ERTC and PPP coexist? To know more about these finer but critical issues, stay tuned for our upcoming blogs.

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AnnouncementsBudgeting & ForecastingR&DR&D Tax Credit

R&D Tax Credit OR Employee Retention Tax Credit (ERTC) – Can you claim both on your tax return?

by Ashwini Vasudeva

It’s a pleasant surprise when you put on a jacket or pair of jeans and find several crisp twenty dollars bills in a pocket. It may even prompt you to check other pockets to see if there’s additional cash lying around that you can put to good use.

The same can be said for businesses that find extra cash – in the form of tax credits; companies of all sizes and sectors are always searching for more credits for their tax filing. Once you find these golden nuggets you can use them to grow your business. Fortunately, it’s not as difficult as looking for a needle in a haystack. We will take a look at two valuable tax credits that you may have overlooked, which may lower your tax liability: Research & Development Tax Credit (R&D) and the Employee Retention Tax Credit (ERTC).

Calculate and Claim It

It’s important to note that a tax credit isn’t the same as a tax deduction. A tax credit is a dollar-for-dollar reduction in the amount of taxes owed.

Since the R&D tax credit has been around for four decades, most businesses may be familiar with it. If not, here’s a quick summary: Businesses that attempt to develop or improve products or processes may be able to receive an R&D tax credit for eligible expenses that were incurred – even if it was an unsuccessful attempt. If you have not claimed a R&D tax credit, your company may be bypassing a valuable cash infusion.

Catching a Break with the ERTC

Life as we knew it changed when the pandemic made its assault, and many businesses suffered a severe financial blow. This prompted Congress to create the Employee Retention Tax Credit (ERTC) in March 2020, which does not need to be repaid.

Congress later amended and expanded the ERTC twice to enable more employers – who meet certain eligibility requirements – to take advantage of the credit.

In essence, it provides financial relief for eligible employers in the form of a credit against certain employment taxes. It’s been a lifeline for employers that were forced to shut down due to the pandemic or experienced substantial reductions in 2020 or 2021.

Can your Business Benefit from both Credits?

The ERTC allows businesses to offset up to $5,000 of employer payroll taxes per eligible employee for 2020 and up to $7,000 per employee for 2021. Note: it’s critical that you carefully track wages that were allocated to the R&D credit.

The Employee Retention Tax Credit rules were revised for 2021 to exclude wages used to determine the ERTC from being treated as “qualified research activities”. Employers calculating ERTC and R&D credits should confirm that there is no overlap between the credits.

If your company employs 100 or more full-time employees, you may claim only the ERTC on wages paid to employees who were not engaged in “qualified research activities” under the R&D Tax Credit. When calculating R&D wages pages, you should verify if workers were performing qualified research activities.

Talk to an Expert to Learn if you Qualify

Each organization’s facts and circumstances are unique and trying to decipher the IRS’ provisions can be a complicated process. Thus, it’s wise to speak with an accounting firm that specializes in R&D and ERTC. Taking a proactive stance in tax planning will ensure you leverage claims for which you are eligible, giving your business a financial boost.

Can I claim the ERTC and still get the R&D credit?

Qualifying businesses looking to claim both credits need to be careful as wages used to claim the ERTC are excluded from the calculation for the R&D tax credit. Businesses looking to claim both credits should take a thorough look at their qualified wages to ensure that they are maximizing the value they receive for both.

Please connect with me if you have questions.

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Claim Your R&D Tax Credit With Your Tax Return!

by Ashwini Vasudeva

Whether or not you are a football fan, you probably know the Super Bowl is right around the corner – and it will be played right here in the Golden State at SoFi Stadium. But getting there is only half the battle for the two opposing teams. They know there’s a lot more to be accomplished before the winner takes the prize: the highly coveted Vince Lombardi Trophy.

Racing the clock for the prize

Businesses, much like football teams, must be ready to follow through until the time clock runs out if they plan to reap the rewards. Take R&D tax credit, for example. Knowing that your research activities qualify for a tax credit is just part of the equation. In keeping with the football analogy, it’s only the first down. Next, you need to calculate your expenses and determine which ones will qualify for the credit. Then there’s documentation collection and filing the form 6765 with your tax returns – or amending a prior return.

While the R&D tax credit can provide a tremendous financial boost for businesses, it’s not as easy as ‘naming it and claiming it.’ The IRS has instituted strict rules that are highly complex and nuanced, and they are the ones that determine which expenses qualify.

Which Expenses Qualify for the R&D Tax Credit?

Before moving on to claiming the credit, let’s review the basics. The IRS has issued a four-part stipulation that describes which research activities fit within their guidelines. As outlined by the IRS in Section 41(b), qualified research expenses can be as follows:

1. Permitted purpose. The activity must be intended to develop or improve the functionality, performance, reliability, or quality of a business component (product, process, technique, formula, invention, or software). Note: even if the attempts were unsuccessful, you may still be eligible.

2. Elimination of uncertainty. The goal of the activity must be to collect information that could potentially eliminate uncertainty as to whether or how a product can be developed.

3. Technological in nature. The research activity or innovative findings must be linked to one of the sciences or engineering.

4. Process of experimentation. The activity involves evaluating different alternatives that follow a logical process of experimentation. Even if the experiment fails – but was undertaken to find alternatives to improve the existing performance – then the related expenses can qualify for a refund.

What Industries Qualify?

The phrase ‘Research and Development’ can create a misconception for businesses; they may think that to qualify, their research must involve test tubes and high-tech laboratories. In reality, a broad array of industries may qualify, including (but not limited to):

1. Architecture and Engineering
2. Manufacturing
3. Construction
4. Agriculture
5. Software & Technology

In the U.S, it’s estimated that only one-third of all businesses that qualify for the R&D tax credit actually apply for it, even though businesses in most U.S. states can qualify, including:

Alaska, Connecticut, Idaho, Kentucky, Minnesota, New York, South Carolina, Wisconsin, Arizona, Delaware, Illinois, Louisiana, Nebraska, North Dakota, Texas, Arkansas, Florida, Indiana, Maine, New Hampshire, Ohio, Utah, California, Georgia, Iowa, Maryland, New Jersey, Pennsylvania, Vermont, Colorado, Hawaii, Kansas, Massachusetts, New Mexico, Rhode Island, and Virginia.

Changes to the Refund Game Plan

On October 15, 2021, the Chief Counsel of the IRS released some game-changing rules: as of January 10, 2022, the IRS requires that businesses include documents along with their R&D credit claim for refund. Since many companies will be caught off guard, the IRS is granting a transition period of one year.

During the one-year transition period, a timely-filed claim that does not meet the documentation requirements will still be considered timely if perfected within a 45-day grace period. We can conclude that ‘perfect’ means that if a claim was deficient in providing subordinate documentation, it will have 45 days to submit the missing information.

If those 45 days lapse and the IRS hasn’t received it, the entire refund claim will be denied. One concrete date to remember is January 9, 2023: that’s the final deadline – or the end of the fourth quarter. No more time will be added to the clock.

Act Now – While Time is on Your Side

The good news is that the window is still open, but time is of the essence. Astute has a methodology in place that meets IRS stringent requirements. Our comprehensive report includes the details required by the IRS, and substantiation of all qualified activities and expenses. Thus, our process safeguards clients by ensuring all documents will be provided.

Over the past four decades, the IRS has appropriated millions of dollars to businesses to incentivize and reward them for their innovative efforts. Before you leave any of your money on the table, give us a call. We are happy to discuss the R&D process with you and provide guidance on how we can help you receive this tax incentive.

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Budgeting & ForecastingCFO AdvisoryCFO ServicesOutsourced CFO

5 Steps Businesses Can Implement to Achieve 2022 Vision

by Ashwini Vasudeva

It’s that time again – when thoughts turn to creating new habits that will help us get in shape. Resolutions are made to spend less time staring at digital screens or binge-watching our favorite shows. Those who manage to keep their resolutions all year attribute their success to an accountability partner. This applies not only to our personal life but also to business.

Checking the Health of the Organization

No one regrets adopting and maintaining a healthy lifestyle. What people do regret is that they waited too long. Again – this holds true in business. To succeed, businesses should establish and carefully adhere to a set of financial guidelines. What better time to get started than at the beginning of a New Year!

5 Best Practices to Keep You on the Right Track

A recent report by a U.S. bank stated that 82% of all businesses fail, and the reason can be traced back to the mismanagement of cash flow.

Let’s focus on ways to keep your business from becoming a statistic and become one that will not only survive – but thrive.

1. Budgeting and Forecasting

Budgeting and forecasting provides information that allows you to check the company’s vital signs and assess how decisions impact cash flow.
Cash flow to a business is like oxygen to a human – they are necessary for long-term health and survival; without a steady stream of cash, expenses won’t be paid. A budget provides data that illustrates past performance, serving as a tool to help you forecast where you are headed. Accurate forecasting allows you to observe the flow of cash – whether it’s coming in or going out of the business. Monitoring the circulation process will ensure that everything functions properly.

2. Consider Bringing in a Fractional CFO Advisor

A business may be founded by one person but it’s extremely rare that a person can single-handedly grow a business to reach the 6 or 7 figure mark without assistance.
Leaders typically are focused on day-to-day operations and lack the time and vision to chart a path forward. A fractional CFO advisor can deliver fresh perspectives and new insights; they can see through the haze and isolate what is leading to growth and what may be hindering it. Their expertise is indispensable as they can help ensure that your business will be profitable in the short and long term.

3. Automate Systems and Processes

Fractional CFOs have acquired a high level of proficiency, and they understand that digital tools drive success. They tap into their deep technology skills to extract real-time, relevant, and secure data.
Businesses that haven’t already adopted the latest technology solutions for finance and accounting ERP implementations will lack the agility to respond as needed to keep pace in a competitive market.

4. Risk Mitigation

Business risks are more pronounced today than they were prior to the advent of the digital universe. Innovations have reshaped our world since Benjamin Franklin coined the phrase: an ounce of prevention is worth a pound of cure. Organizational leaders are usually inundated with operations and sales to think long and hard about risk exposure, not only internal but also the potential for third-party supplier risks. If you experience an unfortunate loss, do you have plans in place to act immediately? Two procedures that should not only be on your radar – but should be implemented are:

● Pre-Risk Mitigation – setting up right processes and controls
Consider the right processes and controls to streamline data, verification, and approvals – and its accountability. Improve operations, protect assets, and prevent fraud.

● Post-Risk Mitigation – evaluating the risks to mitigate the litigation.
Recurring Internal / Forensic Audits ensure accuracy and compliance on both the financial and IT side. Having a plan in place to conduct quarterly Accounts Payable and Time & Expense audits will maintain data accuracy and compliance.

5. Have a Plan to Recover Revenue

Tax filing season will soon be in full swing which means organizations are already looking for ways to reduce their tax liability. One cash register that’s often overlooked is the one marked: Research & Development (R&D) tax credits.
It’s estimated that IRS tax credits save U.S. businesses – spanning all industries and sectors – between $10 to $12 billion annually. So why aren’t more businesses taking advantage of these credits to lower their tax bill? Most self-censor: they mistakenly think it’s reserved only for business giants.

R&D tax credits aren’t the only way to recover revenue; your business may receive a cash flow injection by performing Royalty / Licensing and other Compliance Audits. In addition to reducing your effective tax rate, these cash incentives can enhance your ROI and strengthen contractual relationships.

How a Fractional CFO Advisory Team can Help you Chart a Successful 2022

If you lack the resources to commit to hiring a full-time CFO – yet need this invaluable expertise – give us a call. With our rich blend of experience and strong technology solutions, Astute can provide you with value-driven solutions that will give you a solid grasp of your business as you enter the new year.

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Budgeting and Forecasting Tips for 2022 – 5 Best Practices to Keep You on the Right Track

by Ashwini Vasudeva

Traveling is always an adventure, regardless of the mode of transportation – especially during the holiday season. For some, just driving near a shopping mall can be exasperating. Having proper plans in place can make the roads more manageable. Still, we realize that unpredictable twists and turns await us on our journey. This rings true for businesses – of any size, in any industry – when year-end budgeting season kicks into gear.

Every December, accounting teams repeat the same steps they did one year earlier. They feverishly sort through numbers from multiple sources, correct manual data entry errors, and confirm that tasks are approved and properly executed. One question of years gone by echoes loudly: is there a better, faster way to prepare an annual budget so it can be confidently delivered – and on time? The answer is: Yes!

We have compiled a list of the top five best practices to help you prepare your budget and create an accurate forecast that will plant the seeds of a successful 2022.

Make use of the Historical Data

Your organization’s prior performance and historical data are pillars upon which you can build next year’s budget. You may have a vault filled with useful tools, but the value of historical data can’t be overstated. This critical information will help you better predict future performance and alert you when you may need to shift gears to drive growth. A Financial leader such as a CFO can ensure you capture the correct data.

Tap into the Power of Centralized Data

As noted, data is vital to budgeting, thus, it’s imperative that you connect the data dots. Siloed, inaccessible, or disconnected data makes it nearly impossible for businesses to properly leverage it. Centralizing data will reduce errors and provide you with an accurate picture. Connecting real time data in one location – and having easy access to it – will smooth out the rough patches in your budgeting journey.

Measure your Key Performance Indicators (“KPIs”), Gather Insights

Setting goals is essential but keeping an eye on the consistency of results can help you stay within your boundaries. These indicators should give you an accurate picture of what is draining your resources and what’s pumping oxygen into your organization. Keeping track of your KPIs will help you make smart data-driven decisions, enhance organizational performance, and guide you on how to allocate resources more effectively.

CFO experts can produce monthly financial analyses and KPI Dashboards to ensure your Cash Flow is strong.

Assess the External Factors and Build Agility

No one likes surprises when traveling. Perhaps you have forgotten to pack the essentials or learned that your luggage went to a different airport. Similarly, organizations don’t want to be blindsided by expenses or losses. It’s true that budgets are designed to keep you on the right course, but they are also living documents. If you weave flexibility into budgeting and forecasting, it will allow you to pivot when circumstances change. McKinsey’s research indicates that during the pandemic, agile organizations were the ones that adapted and outperformed competitors.

Put Financial Processes and Controls in Place

At some point during a flight, the captain may decide to put the plane on cruise control. Those in the cockpit can take a moment to enjoy the midair experience. Thanks to technology, they no longer need to be hands-on. Similarly, business leaders don’t need to always be involved in every detail. Travelers in their seats may not even be aware of this handoff – in all likelihood, the plane will still reach its destination.

Some major stressors leaders have are how to fortify and protect their fortress – both now and in the future. This can be successfully accomplished by outsourcing CFO services. This type of ‘delegation’ brings business leaders peace of mind knowing their financial processes and controls are being handled by a proficient team of financial experts. Instead of worrying about risks, they know that the CFO advisory team can improve processes, perform internal audits, and implement fraud detection controls. A bonus is that these services are not cost-prohibitive; funds that would have paid the salary of a full time CFO can be invested into the company.

Astute has helped many businesses in various sectors grow through our expert CFO services, which have deep roots in accounting and consulting expertise. We start by listening. We want to fully understand the vision for your business to ensure your financial strategies, plans, processes, and actions are in sync. Ready to get started! Contact Us today.

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AnnouncementsBudgeting & ForecastingForensic AuditInternal AuditSmall BusinessStartups

Managing Company-wide Risks With Strong Financial Processes While Working Remotely!

by Ashwini Vasudeva

Most business teams – in nearly every sector – are still working remotely, including their accounting and finance departments. Thus, those in the accounting and financial departments should collaborate often to identify potential risks. So how can you be certain that you have limited yet correct access to the data to make the critical financial decisions and minimize the risk of misappropriation or fraud?

MANAGING RISKS WITH THE RIGHT CONTROLS IN PLACE

An outsourced accounting team with expertise in conducting Internal Audits, along with a full range of CFO advisory services – at fractional costs – is the perfect solution for small to mid-sized businesses. In addition to huge cost-saving benefits, outsourcing also simplifies workflow and saves time. When companies outsource financial tasks, they have more time to dedicate to improving business performance and invest back into the business with increased cash flow.

By outsourcing CFO services, you will have the peace of mind in knowing your processes and controls are fortified and protected. Additionally, a highly proficient team of financial experts can perform risk assessments, improve processes by identifying gaps, perform internal audits and implementing the necessary controls to mitigate any risk of asset misappropriation and fraud. Again – the added bonus: these services are not cost-prohibitive. The cost that would be allocated to a full time CFO can be invested into the company.

SAFEGUARDING AGAINST BAD ACTORS – RISK ASSESSMENT

You don’t need to perform a complete overhaul. You can start by conducting a risk assessment to pinpoint any vulnerability.

A great visual tool is a simple matrix that helps categorize low, medium and high impact risks, along with the probability of their occurrence: likely, unlikely, highly unlikely.

REDEFINING PROCESSES – SETTING INTERNAL CONTROLS

Based on the nature of a business, an organization must revisit delegation of tasks and authority, use technology to set controls, and actively communicate the changes with their team. For example, some operations that require employees to be at a physical location to operate may be compromised when working remotely, such as inventory cycle counts. In a situation like this, the Controller must consider the impact on affected transactions, and bring in compensating controls that can be designed to alleviate some of the control risk.

Role-based access – Delegation of authority
Segregation of duties and a clear line of authority to carry out tasks in a remote workplace is a critical step. Team leaders can assign access to employees based on their roles, and use technology to carry out operational tasks that were previously done in person. These internal controls must be established at the top and effectively communicated through the organization.

Define workflows – A cycle for approvals
Setting up workflows for reviews and approvals within the organization can enhance collaboration and prevent override of controls. Use of online billing and payroll applications can assist in timely approvals and running business operations in remote teams. This will especially hold true for companies who are transitioning from paper to a digital environment.

Adapt Digital Payment Methods
Since digital transactions cannot be avoided in a remote workplace, documenting every step of the process can prevent errors. Team leaders must verify, at every step, that the control has been executed correctly and a log is maintained. A timely identification of error can help avoid consequences for later.

REMOTE WORK CONTINUES ON A STEEP UPWARD TRAJECTORY

Now that most of the workplace has pivoted to working from home, many companies have stated they will adapt a hybrid model for the future; studies show that employees are just as productive in a virtual environment.

According to Global Workplace Analytics, U.S remote work soared 173% between 2005 and 2018. Researchers tell us that the trend isn’t going to reverse once the lockdown ends. Much of the credit for allowing this seamless transition goes to innovative technology; it has the capacity to allow businesses to streamline their financial processes, controls, and the segregation of duties to carry on as usual – even in remote environments.

Astute has been helping many businesses across the U.S. who have been drastically impacted by the pandemic and subsequent lockdowns. Our team of professionals continues to assist clients navigate through these uncertain times. We take proactive steps to identify potential risks so you can address them promptly.

We have been thrilled to see that although 2020 was a stressful year, many of our clients are overcoming adversity; they remain optimistic about the future. The resilience we see motivates us to continue to strive diligently to create value for all our clients. Contact us today and discover how we can help you up your game and continue making strides in growing your business – while helping you protect your controls. Companies that take the necessary steps to fortify their internal controls are ones that will persevere and become more resilient for the next disruptive force.

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How Tech Companies Can Qualify For R&D Tax Credit

by Sandhya Mukkamala

In August 1981, the personal computer revolution was powering up; that’s when IBM released its first PC. This was the catalyst that inspired tremendous innovation in the IT and software arenas. After 2008, there was a major acceleration in the tech industry with an introduction of app-based services, utilization of big data, AI, and machine learning. Consequently, thousands of start-ups popped up, especially in the Bay Area, and began to flourish in this industry.

Imagine if no one jumped in with ideas to improve those initial PCs? Thankfully, innovators saw immense opportunities to make them smaller, more user-friendly, and less expensive – all while adding more RAM. Even within the past ten years, the pace of change continues to pick up speed; IT and software start-ups consistently make valiant attempts to take a commanding lead over their competitors.

According to the San Jose Biz Journal, in 2019, the San Francisco Bay Area tech industry pulled in $45.9B in funding, accounting for 44% of the nation’s tech investments. IT and software start-ups, across the country, have an unrivaled amount of firepower. Many – but not all of these companies – have benefited immensely from the federal government’s Research & Development Tax Credits. Keep in mind whether your research results in significant advancement in technology or turns out to be unsuccessful, you still qualify for R&D Tax Credit.

What is the R&D Tax credit?
This is a non-refundable credit that companies are permitted to deduct from their total tax liability – per Internal Revenue Code Sec. 41, To qualify, businesses – ranging from start-ups to well-established – must have research and development-related costs. Since its inception, millions of companies have been capitalizing on this credit annually.
Below are the R&D tax credit basics and the business costs that may qualify. According to IRS guidelines, research will need to:
  1. Leverage engineering or computer science,
  2. Develop a new or improved product – or process. This includes software and technology platforms, or
  3. Utilize an experimentation/testing process to eliminate technological uncertainty.

While information exists on the IRS’ website on Credit for Increasing Research Activities – Form 6765, not every start-up or accountant is aware of the R&D Tax Credit.

Busting the Qualification Myths
Myths abound as to why IT and software companies believe R&D Tax credits are only available for large tech or big pharma power players. This is not entirely true. Below are two other myths that companies erroneously believe:

  1. Their processes or product improvements don’t qualify, or
  2. The savings would be too insignificant and not worth the hassle.
Unwrapping the qualification criteria
The word ‘innovative’ can often make taxpayers hit the pause button. Even if they believe their activities are improving their products or processes, it’s unlikely there will be an industry-wide impact. Just because the development of a new algorithm won’t revolutionize space travel or surpass 5G, it still provides immense benefit to your company. As long as the R&D work companies undertake improves their business, it may be a qualified R&D expense. As you consider filing Form 6765 – Credit for Increasing Research Activities, the best course of action is to conduct a feasibility study. This will help you identify the potential federal – and state – credits that may be available to your tech or software company. Note – this credit can be taken for open tax years, which may result in enormous savings.

 

To give you an estimate of the total savings you may reap, we have included an R&D tax credit calculator for your convenience.

 

Will PPP Loan Forgiveness impact the R&D Tax Credit?
As per the latest news, any PPP forgiveness claimed may affect the process of calculating the R&D Tax Credit in 2020. However, if you claim both the employee retention credit and the R&D tax credit in 2020 and/or 2021, the level of details required in your documentation for wages attributable to qualified research activities may have complexities. Small businesses that received a PPP loan may experience a reduction in their ability to claim both federal and state R&D tax credits based on the above. If you are a tech or software company, now is an excellent time to reevaluate your past, current, and future R&D activities.

 

For years, the experts at Astute have been helping companies like yours claim R&D tax credits that they didn’t realize they were eligible to receive; to date, the total credits that we have claimed on behalf of our clients exceeds $75M. We are confident we can help you determine what tax credits may be advantageous for you. Contact me at sandhya@thinkastute.com and schedule an appointment at your convenience.
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