We recognize the role research and development (R&D) plays in the success of our clients’ businesses, and we strive to ensure that our clients develop and implement a strategy that enables them to receive the financial benefit they deserve along with the sustainability they need. Correctly calculating your research credits is critical because they can be used to lower your company’s effective tax rate. For companies in net loss positions, the federal R&D credit may be carried back one year and carried forward for 20 years until it can be used.
The key to obtaining R&D tax credits is distinguishing between qualified and nonqualified research activities and expenses. The distinction often is subjective, and may be based on how a company’s accounting and project management systems allocate activities and expenses. As a result, many allowable expenses can be overlooked by taxpayers. Our R&D team is skilled in reviewing such systems and redesigning them to better capture qualified expenses.
There are currently two available methods for calculating the federal R&D tax credit. The traditional or “regular” method relies on a base period of expenses and gross receipts from the mid-1980s which can prove cumbersome to many companies. The more recently introduced Alternative Simplified Credit (ASC) method has become popular because it only requires examination of expenses in the credit year and for the prior three years. Qualified Research Expenses (QREs) include a percentage of employee wages, supplies used in development or testing, and a portion of product or process development consulting fees.
The regular credit is computed by measuring qualified expenses as a percentage of a business’s gross receipts and a higher percentage is applied to qualifying expenses than with the ASC method. Thus, if a business is increasing its QREs as a percentage of gross receipts measured against a historic period, it will likely be eligible for the regular credit, but the recordkeeping requirements can be onerous and may make the ASC method more attractive despite the difference in the applied percentage. The ASC is a less burdensome methodology to compute the research credit. Generally, the credit is equal to 9.1% of a business’ increase in QREs in the current year over 50% of average QREs in the prior three years.
Once we determine which method is most advantageous for your business, we assist in designing custom reports that identify the documentation needed to substantiate your company’s R&D claim.
Anchin’s objective for delivering substantiated studies involves exploring all potential areas of opportunity including new project design; design improvements; process or technique development or improvements; review of IT systems; design of software systems specifically designed for research; review of cross-functional process improvement; and data collection activities.
In addition to the Federal R&D tax credit, similar credits and other incentives are offered by 38 states, 6 of which offer refundable credits in order to attract new jobs and industries to the region. In most cases, the rules for calculating the state tax credits follow the federal rules closely. With minimal additional effort, our team can identify and calculate applicable state R&D tax credits and incentives. These additional state tax credits and incentives may lower your effective tax rate further while providing improved cash flow.
- R&D Tax Credits Case Studies: Chemicals
The following are two chemical company case studies which further illustrate the types of projects and activities that will potentially qualify for the R&D tax
- R&D Tax Credits Case Studies: Life Sciences
The following are two case studies which further illustrate the types of projects and activities that will potentially qualify for the R&D tax credit. The
- R&D Tax Credits Case Studies: Financial Services
The following are two case studies which further illustrate the types of projects and activities that will potentially qualify for the R&D tax credit. The
- R&D Tax Credits Case Studies: Architecture/Engineering/Construction
The following are two examples of client development efforts in the A/E/C industry which further illustrate the types of projects and activities that will potentially qualify
- R&D Tax Credits Case Studies: Medical Devices
The following are two medical device company case studies which further illustrate the types of projects and activities that will potentially qualify for the R&D
- R&D Tax Credits Case Studies: Manufacturing and Distribution
The following are two examples of client development efforts in the manufacturing and distribution industry which further illustrate the types of projects and activities that
- R&D Tax Credits Case Studies: Technology
The following are two examples of client development efforts in the software and IT industry which further illustrate the types of projects and activities that
- R&D Tax Credits Case Studies: Fashion
The following are two fashion company case studies which further illustrate the types of projects and activities that will potentially qualify for the R&D tax
- R&D Tax Credits Case Studies: Food and Beverage
The following are two examples of client development efforts in the food and beverage industry which further illustrate the types of projects and activities that
- Tax Cuts and Jobs Act Offers Favorable Tax Breaks for Real Estate OwnersJanuary 3, 2018
The Tax Cuts and Jobs Act (TCJA), which was signed into law on December 22, offers the real estate industry a treasure trove of tax breaks. Overall, most Real Estate companies and owners will come out ahead under the new tax law, but there are a number of tax breaks that were eliminated. Here are the most important changes in the new law that will impact the real estate industry.
- Tax Cuts and Jobs Act Offers Favorable Tax Breaks for BusinessesDecember 28, 2017
The Tax Cuts and Jobs Act (TCJA), which was signed into law on December 22, contains a treasure trove of tax breaks for businesses. Overall, most companies and business owners will come out ahead under the new tax law, but there are a number of tax breaks that were eliminated or reduced to make room for other beneficial revisions. Here are the most important changes in the new law that will affect businesses and their owners.
- The Tax Cuts and Jobs Act Doesn’t Cut the R&D Tax CreditDecember 27, 2017
On December 22nd, President Trump signed the Tax Cuts and Jobs Act of 2017 (“TCJA”) into law, setting the stage for the most sweeping update to the U.S. tax code since 1986 tax reform enacted under President Reagan. The centerpiece of the TCJA, is a permanent reduction in the corporate tax rate from approximately 35% to 21%. Thankfully, as expected, the final law has preserved the research and development (“R&D”) tax credit, which was made permanent in the Protecting Americans against Tax Hikes (“PATH”) Act of 2015.
- Tax Bill Impacts A/E/C IndustriesDecember 22, 2017
Today, President Trump has signed into law the “Tax Cuts and Jobs Act of 2017” (TCJA). The bill contains many provisions that will significantly impact the construction, architecture, and engineering industries.
- Congress passes biggest tax bill since 1986December 21, 2017
On December 20, the House passed the reconciled tax reform bill, commonly called the “Tax Cuts and Jobs Act of 2017” (TCJA), which the Senate had passed the previous day. It’s the most sweeping tax legislation since the Tax Reform Act of 1986. The bill makes small reductions to income tax rates for most individual tax brackets, significantly reduces the income tax rate for corporations and eliminates the corporate alternative minimum tax (AMT).
- Tax Bill ReleasedDecember 18, 2017
Late Friday night, a written version of the Republican tax proposal was finally released. The bill represents a substantial revision of our country’s tax code.
- Tax Plan Moves ForwardDecember 14, 2017
The Senate and House conference committee made further progress on its tax reform plan.
- Senate Passes Tax BillDecember 5, 2017
The Senate voted and narrowly passed its version of tax reform legislation clearing another significant hurdle in the progress of changing our nation's tax system. There still remains significant differences between the House and Senate versions which will require reconciliation of the two bills.
- U.S. Research and Development Tax CreditOctober 30, 2017
Yair Holtzman, Leader of Anchin's Research and Development Tax Credits Group, explains how the credit works and shares his findings on the impact of the PATH Act.
- New Research Credit Directive Provides Safe Harbor for Taxpayers That Expense R&D Costs on Audited Financial StatementsOctober 10, 2017
The Large Business and International (LB&I) division of the IRS recently released guidance that will allow taxpayers to take advantage of a new safe harbor under which an adjusted amount of their ASC 730 R&D costs can be deemed qualified research expenses (QRE) for the purpose of claiming the Section 41 research tax credit.
- Federal Tax Proposal ReleasedSeptember 28, 2017
On Wednesday, September 27th, the “Unified Framework for Fixing Our Broken Tax Code” was released. In the nine page outline, numerous concepts for federal tax reform were presented. We have been told that this outline was intentionally broad in order to allow the Ways and Means Committee to take the first step in drafting legislation.
- New York State Alcoholic Beverage Production CreditAugust 15, 2017
The New York State Department of Taxation and Finance has expanded the applicability of the Alcoholic Beverage Production tax credit (formerly known as the Beer Production Credit). For tax years beginning after December 31, 2015, the credit is now available to registered distributors that produce beer, cider, wine and liquor.
- It’s Not Too Late to Amend Your 2016 Tax Return for the R&D Tax CreditJuly 5, 2017
Recently, the IRS issued interim guidance on how eligible small businesses can benefit from a new provision that enables them to apply their Section 41, Research and Development tax credit against their payroll tax liability instead of their income tax liability, allowing qualified companies to start using the credits before becoming profitable.
- New Jersey Angel Investor Tax CreditMay 24, 2017
New Jersey has amended and expanded the rules for claiming the Angel Investor Tax Credit. The Angel Investor Tax Credit provides for a tax credit equal to ten percent (10%) of the qualified investment made by a taxpayer in a New Jersey emerging technology business.
- New York Announces Passage of State BudgetApril 25, 2017
Governor Andrew M. Cuomo announced the passage of the 2018 State Budget (“Budget”) which includes some interesting tax provisions.
- Tax Credits Clarity Provides Great Opportunity for Businesses Regarding Internal Use SoftwareOctober 7, 2016
On October 3rd, 2016, the Treasury and IRS released final regulations regarding Internal Use Software (“IUS”) expenditures as related to the Section 41 Research & Development (“R&D”) tax credit.
- Is a U.S. ‘Patent Box’ a Good Idea?May 19, 2016
Yair Holtzman, Practice Leader of Anchin's Research and Development Tax Credits Group, Life Sciences Industry Group and Chemicals and Energy Industry Group, shares his thoughts on the proposed "patent box" regime.
- Assessing Section 199 and IRS Released Proposed Regulations to Determine Deduction EligibilityApril 14, 2016
Designed to protect jobs in the United States manufacturing and related sectors, Section 199, also known as the Domestic Production Activities Deduction ("DPAD"), allows a deduction equal to 9% of the lesser of a taxpayer’s Qualified Production Activities Income ("QPAI") or its taxable income.
- IRS Emphasizes the Need for Compliance When Claiming Tax CreditsApril 12, 2016
This past February, the IRS released its annual "Dirty Dozen" list of warning alerts for 2016 filing season. The Dirty Dozen includes a variety of common scams taxpayers may encounter at any time during the year.
- Permanent R&D Tax Credit A Game Changer for America’s BusinessesDecember 21, 2015
On December 18, 2015, President Obama signed into law The Protecting Americans from Tax Hikes Act (PATH) of 2015.
- New York City-Corporate Income, Miscellaneous Taxes: Authorization for Biotechnology Credit Extended for Three YearsOctober 7, 2015
The Biotechnology Tax Credit allows qualified emerging technology companies (QETCs) specializing in biotechnology to claim a tax credit against the General Corporation Tax and Unincorporated Business Tax for amounts paid or incurred for certain expenses in New York City.
- The Agricultural Chemicals Security Credit has expired, but is opportunity still knocking?February 18, 2015
The Agricultural Chemicals Security Credit was applicable to eligible expenditures incurred after May 22, 2008 and before January 1, 2013.
- Court Case Impacts Eligibility of Capped Contracts for R&D Tax CreditsFebruary 16, 2015
On January 29, 2015, the United States Court of Appeals for the Eleventh Circuit affirmed a federal district court’s decision in Geosyntec Consultants, Inc. v. United States, No. 14-11107, disallowing the R&D tax credit for research expenditures linked to capped contracts.
- Proposed Regulations Provide Clarity and Guidance Related to Computer Software as it Applies to the R&D Tax CreditJanuary 26, 2015
On January 16, the Treasury and IRS released proposed regulations (REG-153656-03) regarding internal use software ("IUS") expenditures as related to the Section 41 Research & Development ("R&D") tax credit. The proposed regulations contain several important changes related to claiming the R&D tax credit for IUS expenditures.
- How Does Tax Reform Impact You?
Finally Some Digestible Meal and Entertainment Guidance10/3/2018 Philanthropy and Tax Reform: Is it Advantageous to Accelerate Contributions?9/27/2018 529 Plans and Tax Changes8/29/2018 Proposed “Pass Through” Deduction Regulations -
- Refueling innovation in the US chemicals industry by taking advantage of the research and development tax creditAugust 1, 2018
It is worthwhile for any US based business in the chemical industry that is attempting to innovate to consult with an R&D tax credit professional if they are not already claiming this credit. Even if a company is already claiming this credit it is worth examining to ensure this benefit is truly optimized.
- Tax Ideas for a Booming IndustryMarch 20, 2017
The construction industry is alive and well in 2017. As a major force in New York and the greater US economy, it employs more than
- Software Development and the Research CreditMarch 1, 2017
This article discusses the definition, workings, recent history / developments, and calculation methodologies for the R&D tax credit. It then offers specific examples of qualifying
- Debunking Some Common R&D Tax Credit MythsDecember 5, 2016
Yair Holtzman, Gleb Gorkhover and Michael Ganz of Anchin Block & Anchin examine common myths that deter companies from claiming benefits of the research and
- A Comparative Review: Innovation-Centric Tax Incentives in the U.S. and U.K.November 22, 2016
Yair Holtzman and Ronald Kalungi of Anchin Block & Anchin look at U.K. and U.S. tax provisions geared to stimulate R&D and technological innovation, including
- Improving Packaging Design ROIMarch 29, 2016
Yair Holtzman of Anchin, Block & Anchin examines how expenses to improve packaging design can qualify for research and development tax credits. As new materials,
- Permanent R&D Tax Credit: A Game Changer for America’s BusinessesJanuary 14, 2016
Yair Holtzman of Anchin, Block & Anchin writes that more taxpayers are eligible to claim R&D credits with enactment of the PATH Act, and the
- Don't Forget to Examine Your Company's State Research and Development CreditsJanuary 4, 2016
Yair Holtzman, Gleb Gorkhover, Michael Ganz and Matthew Bechtold of Anchin, Block & Anchin offer a state-by-state examination of the various state R&D credits and
- The Financial Services Industry and the Research and Development Tax CreditNovember 1, 2015
The financial services industry is an essential component of the U.S. economy that provides liquidity to companies and individuals, is responsible for safeguarding and investing
- Catalyzing Innovation in the Chemicals Industry: How the Research and Development Tax Credit Can Benefit Your CompanyMarch 25, 2015
Yair Holtzman and Matthew Bechtold of Anchin, Block & Anchin explain the costs that are eligible for-and computations required to claim-research and development tax credits,
- The R&D Tax Credit — A Catalyst For Life Sciences InnovationFebruary 1, 2015
Does your company develop new medical products, pharmaceuticals, or innovative production techniques in the United States? Does your company create software for the medical industry
- Secret Ingredient For Keeping Food Innovations Fresh - The R&D Tax CreditJanuary 1, 2015
Innovation is a key driver in helping food and beverage companies deliver on strategic goals by getting the right products to market with speed and
- The State of the U.S. Medtech IndustryJanuary 1, 2015
The United States is the global leader in medtech innovation, but can it continue to maintain that position? As the medical device industry enters 2015, the
- Building Your Research and Development Tax Credit Claim on a Solid Foundation: The Architectural, Engineering and Construction IndustryJune 1, 2014
While large multinational architectural, engineering and construction firms are well aware of the benefits of the Research and Development (R&D) tax credit and avail themselves
- You Can Have Your Cake and Eat It Too: The Research and Development Tax Credit for the Food and Beverage IndustryJanuary 1, 2014
Abstract Food and beverage innovation is a key driver in helping companies in the industry deliver on strategic goals by getting the right products to market
- Building Your Research and Development Tax Credit Claim on a Solid Foundation: The Architectural, Engineering and Construction IndustryJanuary 1, 2014
Introduction While large multinational architectural, engineering and construction firms are well aware of the benefits of the Research and Development (R&D) tax credit and avail themselves
- U.S. Medtech Challenges at Home and AbroadAugust 1, 2012
Healthcare reform, regulation, and R&D hurdles must be overcome to gain access to the big opportunities for the medtech industry. Today, the United States is the
- An Overlooked Tax Benefit: The U.S. Agricultural Chemicals Security CreditJanuary 5, 2011
Introduction The 110th Congress passed the Food, Conservation, and Energy Act of 2008 (Pub. L. No. 110-246), popularly known as the "Farm Bill," in May 2008 over
- The Research and Experimentation Tax Credit: A Credit Fraught with Uncertainty and in a Process of ExperimentationJanuary 1, 2011
Abstract Purpose – The purpose of this paper is fourfold: to provide an overview of the alternative simplified credit (ASC) and a basic understanding of how
- Harnessing Efficiency and Building Effectiveness in the Tax DepartmentJanuary 1, 2010
Introduction Organizations employ a number of formulas to improve their business processes. These actions typically involve searching for internal cost-savings opportunities, developing departmental strategic relevance and
- Utilizing Innovation and Strategic Research and Development to Catalyze Efficient and Effective New Product DevelopmentJanuary 1, 2010
Introduction The ability to effectively innovate and develop new products is a vital core competency that any company must possess if it is going to be