{"id":153,"date":"2021-02-18T07:15:15","date_gmt":"2021-02-18T07:15:15","guid":{"rendered":"https:\/\/www.thinkastute.com\/blog\/?p=153"},"modified":"2023-11-26T07:19:34","modified_gmt":"2023-11-26T07:19:34","slug":"how-tech-companies-can-qualify-for-rd-tax-credit","status":"publish","type":"post","link":"https:\/\/www.thinkastute.com\/blog\/how-tech-companies-can-qualify-for-rd-tax-credit\/","title":{"rendered":"How Tech Companies Can Qualify For R&D Tax Credit"},"content":{"rendered":"

In August 1981, the personal computer revolution was powering up; that\u2019s 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.<\/p>\n

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 \u2013 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.<\/p>\n

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\u2019s tech investments. IT and software start-ups, across the country, have an unrivaled amount of firepower. Many \u2013 but not all of these companies \u2013 have benefited immensely from the federal government\u2019s 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.<\/p>\n

What is the R&D Tax credit?
\n<\/strong>This is a non-refundable credit that companies are permitted to deduct from their total tax liability \u2013 per Internal Revenue Code Sec. 41, To qualify, businesses \u2013 ranging from start-ups to well-established \u2013 must have research and development-related costs. Since its inception, millions of companies have been capitalizing on this credit annually.
\nBelow are the R&D tax credit basics and the business costs that may qualify. According to IRS guidelines, research will need to:<\/div>\n
    \n
  1. Leverage engineering or computer science,<\/li>\n
  2. Develop a new or improved product \u2013 or process. This includes software and technology platforms, or<\/li>\n
  3. Utilize an experimentation\/testing process to eliminate technological uncertainty.<\/li>\n<\/ol>\n

    While information exists on the IRS\u2019 website on Credit for Increasing Research Activities – Form 6765, not every start-up or accountant is aware of the R&D Tax Credit.<\/p>\n

    Busting the Qualification Myths
    \n<\/strong>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:<\/p>\n
      \n
    1. Their processes or product improvements don\u2019t qualify, or<\/li>\n
    2. The savings would be too insignificant and not worth the hassle.<\/li>\n<\/ol>\n
      Unwrapping the qualification criteria
      \n<\/strong>The word \u2018innovative\u2019 can often make taxpayers hit the pause button. Even if they believe their activities are improving their products or processes, it\u2019s unlikely there will be an industry-wide impact. Just because the development of a new algorithm won\u2019t 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 \u2013 and state \u2013 credits that may be available to your tech or software company. Note \u2013 this credit can be taken for open tax years, which may result in enormous savings.<\/div>\n
      <\/div>\n

       <\/p>\n

      To give you an estimate of the total savings you may reap, we have included an R&D tax credit calculator<\/a> for your convenience.<\/strong><\/div>\n
      \n
      <\/div>\n

       <\/p>\n

      Will PPP Loan Forgiveness impact the R&D Tax Credit?
      \n<\/strong>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.<\/div>\n

       <\/p>\n

      For years, the experts at Astute have been helping companies like yours claim R&D tax credits that they didn\u2019t 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.<\/em><\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

      In August 1981, the personal computer revolution was powering up; that\u2019s when IBM released its first PC. This was the catalyst that inspired tremendous innovation in the IT and software…<\/p>\n","protected":false},"author":2,"featured_media":155,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,7,11,5,13],"tags":[27,54],"class_list":["post-153","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-announcements","category-budgeting-forecasting","category-news","category-rd","category-rd-tax-credit","tag-rd","tag-tech-companies"],"yoast_head":"\nHow Tech Companies Can Qualify For R&D Tax Credit - ThinkAstute Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.thinkastute.com\/blog\/how-tech-companies-can-qualify-for-rd-tax-credit\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How Tech Companies Can Qualify For R&D Tax Credit - ThinkAstute Blog\" \/>\n<meta property=\"og:description\" content=\"In August 1981, the personal computer revolution was powering up; that\u2019s when IBM released its first PC. 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