Federal and state research and development (R&D) tax credits are some of the least understood and least claimed tax credits available. The hard fact is that most businesses aren’t claiming their full potential. And that equates to leaving cash on the table. Big cash!
In simplest terms, this is a general business tax credit under IRS section 41 for any business that incurs R&D costs in the United States. In total, the government offers more than $10 billion to businesses for qualified R&D activities. This can include innovative activities such as developing or improving existing technologies, products and materials.
For firms, mastering R&D credits can open the door to a bigger advisory opportunity. One that may lead to significant unclaimed money for your clients—while making you look like a total rock star.
To help you maximize research and development credits for your clients, we’ve compiled a roadmap of sorts. It was designed to help you, first, gain a clear understanding of R&D tax credits and what they mean to your clients. And second, to guide you toward developing a lucrative new advisory revenue stream.
This roadmap is complete with a real-world federal R&D credits client example and links to other helpful resources. Now, let’s get started…
The first step is to identify those within your client base who qualify. To help you, let’s start with a few preparation suggestions:
The following list offers 10 good starter questions:
Once you’ve qualified clients, the byproduct should be an accurate list for communication purposes. But first, it’s important to understand what you want to talk to clients about and/or have a defined product in place to offer them. For example: R&D tax credit advisory.
When you fully understand qualifying activities and industries, you’re better positioned to sell R&D credits as a service. Your goal should be to become the go-to source for your clients in this area.
Remember, you don’t want clients leaving money on the table. You want to be the expert that brings this to their attention and helps them claim credits due.
First, understand a few common qualifying activities:
Second, understand some of the most common qualifying industries:
Note: While the above represents common qualifying industries, this list is not all-inclusive.
Also important to note is that even companies without a dedicated R&D department may be eligible for credits based on the level of commitment to developing new products, processes, software or inventions.
Your clients look to you for timely, accurate advice on just about everything tax- and accounting-related, including R&D tax credits. Becoming an expert in this area will help you elevate your advisor role and define an R&D credits product. You can advise clients on:
To help streamline R&D tax credit services for your clients, leverage existing expertise from a proven and reliable partner. ADP® is a good example.
ADP offers a combination of R&D tax credit expertise, technology and resources to help make claiming tax credits for your clients as simple, streamlined and predictable as possible.
This makes developing an R&D product much simpler. For example, if you’re already using ADP for payroll, access to data is built in. ADP uses client payroll data to calculate tax credits and support compliance.
R&D tax credits represent a new opportunity to expand your advisory role and support clients with a much-needed service.
Year after year, qualifying businesses leave money on the table. And simply because they’re not aware of the credit and/or how to claim it.
This is where your firm comes in.
Take a big advisory step forward and be the go-to R&D tax credit source for your clients. Not only will you strengthen the client-advisor relationship, but you can also help to further secure the financial success of your business clients.
ADP is trademarks of ADP, Inc. and its affiliates. All other marks are the property of their respective owners. Copyright © 2022 ADP, Inc. All rights reserved.
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