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10 Questions: Increase cash flow with the R&D Tax Credit
In the July 24, 2019 installment of the CohnReznick National Tax Webinar Series, members of our National Tax Practice reviewed ways to increase cash flow with the Research & Development (R&D) Tax Credit. During this webinar, they reminded our attendees that American businesses that design and develop new or improved products and processes can earn substantial tax savings through the R&D Tax Credit. In addition, our team reviewed:
- Ways to increase cash flow and immediately reduce current year regular tax liability, AMT, or FICA
- Using the credit to gain significant savings through a multiyear analysis
- How to gain permanent tax savings and a reduction of your overall effective tax rate
- How the R&D Tax Credit can be claimed in addition to any tax deduction taken for R&D expenses
- Other enhancements made to the R&D Tax Credit that you may not be aware of
Below are a few of the questions asked by attendees of the webinar, with answers provided by our CohnReznick presenters: Henrietta Fuchs, and Jessie Cahill.
A. Implementation of ERP systems may qualify for the R&D credit if the taxpayer is involved in software development. Generally, ERP systems are often installed under a third-party contract. This contract would need to be reviewed to ensure the taxpayer is eligible to claim expenses for the R&D credit.
A. Purchasing and installing a GPS tracking device/software may not necessarily qualify for the R&D credit. However, development efforts related to implementation (software design) may qualify.
A. The best way to show if qualified services were performed within the U.S. is through contemporaneous documentation.
A. The best place to start is to have your contracts reviewed by an R&D tax credit professional. Contracts and the R&D tax credit are too complex to address here.
A. Understanding if a company can utilize the R&D tax credit is complex and requires professional advice. We recommend having your returns reviewed by an R&D tax credit professional.
A. Several of our clients develop software and hardware under contract for the U.S. government. Examples include software as a service, unique AI software program development, and embedded software in existing and prototype hardware. To discuss further, please contact us.
A. In general, a corporate return can be amended within three years of the date the original return was due. Depending on the return, other factors may allow the capture of R&D tax credits beyond three years.
A. The R&D tax credit becomes more complex when contracts are involved. There are rules that must be clearly met to ensure the taxpayer has the “rights and risk.” We recommend any contract be reviewed to ensure the taxpayer is eligible to claim expenses for the R&D credit.
A. The R&D tax credit is a U.S.-based activity credit. The qualified services need to be performed in the U.S. to qualify for this tax credit.
A. The R&D tax credit can often be more than the tax liability of a company in any given year. Unused R&D tax credits can be carried forward 20 years until utilized. It's best to consult your tax return preparer or your R&D tax credit professional for specific details.
A. The R&D tax credit is available to corporations and pass-throughs.
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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.