April 30, 2020

R&D Tax Credits: An Opportunity for Refunds Now!

R&D Tax Credits: An Opportunity for Refunds Now! Research & Development Tax Credit

During the ongoing coronavirus pandemic, many businesses are struggling and concerned about cash flow. Business owners may be surprised to know that there may be quick refund opportunities related to prior year research and development (R&D) costs.

By reviewing company costs, taxpayers can determine if such expenses are eligible for federal and state R&D tax credits. Some credits may entitle the business owner to amend prior year returns or to offset current period payroll tax liabilities.

Taxpayers that paid or are paying income taxes in connection with their 2016, 2017, 2018 and 2019 income tax returns and/or 2020 payroll tax filings should consider reviewing their operations related to credit eligibility. There still are opportunities to increase cash flow and reduce the tax burden!

Opportunity

Eligible companies are permitted to amend their prior three years’ tax returns to take advantage of the R&D credit related to certain expenses incurred during each prior period.

How much is the credit?

The federal R&D tax credit effectively allows a credit of up to 10% of eligible expenses. In addition to the federal credit, most states also provide an R&D tax credit to reduce state income taxes.

Who can claim the R&D tax credit?

According to Section 41 of the Internal Revenue Code, a qualifying activity can be categorized as anything that is new or improved (process or product) for the company. The credit can be claimed by any entity. Marcum has had great success assisting clients in claiming R&D tax credits for the following industries:

  • Technology
  • Manufacturing
  • Fabrication
  • Aerospace
  • Architectural & Engineering Firms
  • Construction
  • Software Development
  • Packaging
  • Apparel
  • Pharmaceutical
  • Wineries & Breweries
  • Food & Beverage

Utilization of Credit

Credits can be utilized to offset income tax or, if eligible, employer-paid payroll taxes. Any unused credit can be carried back one year or forward up to 20 years. There is no limit on how much credit can be generated.

Payroll Tax Credit

This is a credit generally available to start-up companies which may not have an income tax liability but do have payroll. Eligibility to elect to reduce employer-paid payroll taxes (as opposed to income taxes) is also an opportunity if the company has been in existence five years or less and has less than $5 million of gross receipts each year.

Next Steps

Marcum’s R&D team is available to assist you in evaluating and applying for these tax credits. Almost any business qualifies. Prior to engagement, Marcum will produce a cost-benefit analysis to quantify the amount of opportunity. Feel free to reach out to one of the following representatives for more information.

William Kuhlman, National Practice Leader, William.Kuhlman@marcumllp.com
Patrick Rogers, Mid-Atlantic, Patrick.Rogers@marcumllp.com
Mark Leaheey, Mid-West, Mark.Leaheey@marcumllp.com
Grant Keligian, West Coast, Grant.Keligian@marcumllp.com
Robin Weatherby, New England, Robin.Weatherby@marcumllp.com
Carlos Torres, Florida, Carlos.Torres@marcumllp.com