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Research and Development Tax Credits

Game Changer for America’s Businesses

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 most US states to attract new jobs and industries into their region. In most cases, the rules for calculating state R&D tax credits follow the federal rules closely. With minimal additional effort, Anchin’s professional R&D team can identify and calculate applicable state research credits. These additional state credits and incentives may lower your effective tax rate further while also providing increased cash flow.

Success Stories

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    While Code Section 1400Z, providing for the funds, was slipped into the Tax Cuts and Jobs Act late in the legislative process and with little fanfare, it quickly became popular with investment advisors.

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    Anchin: Personalized Accounting Services for Holistic GrowthJune 18, 2021

    The COVID-19 pandemic has presented challenges to accounting firms and their clients, many of whom are still working on a strategy to combat this unprecedented situation. While CFOs and other finance professionals spent much of 2020 addressing the pandemic's hardships, in 2021 they will likely be shifting their focus toward implementing long-term plans to position their organizations for growth and profitability. Despite its toll on people and businesses, the pandemic has created an opportunity for accounting firm leaders to influence positive outcomes by reevaluating and adjusting their goals and executing wellthought-out strategies. As a result, advisory services are among the fastest-growing segments for firms such as Anchin, one of the country's leading accounting and advisory firms. Since the onset of the pandemic, Anchin’s team of professionals have made it a priority to assist their clients through COVID-19 related hardships including guiding clients through the transition to remote working, evaluating cash flow and costs, and providing them with continuous information and updates on the Paycheck Protection Program (PPP) and other incentives and programs.

  • Anchin Alert
    What Technology Companies Need to Know About the Enhanced NJEDA Technology Business Tax Certificate Transfer ProgramMay 12, 2021

    The Technology Business Tax Certificate Transfer Program enables qualified, unprofitable, NJ-based technology or biotechnology companies with fewer than 225 U.S. employees (including parent company and all subsidiaries) to sell a percentage of their net operating losses (NOL) and research and development (R&D) tax credits to unrelated, profitable corporations.

  • Anchin Alert
    What A/E/C Firms Need to Know About the R&D Tax Credit and the Employee Retention CreditMay 7, 2021

    In order to stimulate the U.S. economy during the pandemic, the federal government enacted stimulus initiatives including the Paycheck Protection Program (PPP). The PPP enabled a business to receive a loan, with the ability to be forgiven if used according to loan guidelines that were put in place to help businesses keep their workforce employed during the COVID crisis. While many architecture, engineering, and construction (A/E/C) businesses successfully participated in the program, receiving the loan and later applying for and receiving forgiveness, the tax ramifications of receiving a PPP loan initially were somewhat unclear. One area of uncertainty was the tax deductibility of expenses covered by the PPP, which would also impact and reduce the expenses that could be claimed for the Research and Development (R&D) tax credit.

  • Anchin in the News
    Changes to R&D Expensing—Unpleasant Surprise to Taxpayers and Great Opportunity for BipartisanshipMarch 18, 2021
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    INSIGHT: Financing Innovations in Emerging Technologies With R&D Tax CreditsAugust 27, 2020
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    INSIGHT: Taking Another Look at the Foreign-Derived Intangible Income DeductionJuly 24, 2020

    The Foreign-Derived Intangible Income (FDII) income deduction is not the simplest of calculations. Gwayne Lai, Amanda Scott, and Yair Holtzman of Anchin show how some taxpayers can use existing R&D data to get a head start.

  • Anchin Alert
    U.S. Tax Court Reaffirms Architecture, Engineering and Construction Industry’s Right to Claim R&D Tax CreditsJuly 7, 2020

    Taxpayers within the Architecture, Engineering and Construction (AEC) industry received a big win from the U.S. Tax Court this past December. The Tax Court’s decision reaffirmed that AEC industry companies contracted by developers or other clients are indeed eligible to claim R&D tax credits for research activities they perform. This has long been a contentious issue between the IRS and AEC Industry taxpayers. Populous Holdings, an architectural design services company, had claimed R&D tax credits on its 2010 and 2011 tax returns totaling nearly $300,000. The IRS disallowed these claims, arguing that the research activities were funded by Populous clients who contracted with the company for its services.    

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  • Anchin Alert
    For Companies Retooling to Fight COVID-19, R&D Tax Credits Are Important WeaponsMay 14, 2020

    For many companies, catalyzing successful innovation is already critical to long-term strategy and success. Companies recognize the importance of tax credits and incentives as critical weapons in remaining competitive and harnessing innovation. This R&D tax credit may be increasingly attractive for companies that are redesigning their business processes and/or product innovation in the face of the pandemic.

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    A Tax Credit for COVID-19 InnovationMay 5, 2020

    Manufacturers repurposing production and research to support the relief effort may qualify.

  • Anchin Alert
    What to Know About the Research & Development (R&D) Tax Credit and the IRS’ New Compliance CampaignMay 1, 2020

    The R&D tax credit can be a powerful incentive, often providing a hidden source of cash from prior years’ expenses while also serving to significantly reduce current and future years’ federal and state tax liabilities. The R&D tax credit is also a tool for refueling a company’s R&D efforts. Planning ahead by creating an infrastructure that identifies qualifying research activities and collects contemporaneous documentation is essential to reducing future tax liabilities and synthesizing an R&D tax credit that will be sustainable on audit examination. There has been a new development related to this credit. 

  • Anchin Alert
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  • Anchin in the News
    A different calculationJanuary 28, 2020

    Yair Holtzman and Sharlene Sylvia share insights about how companies can take advantage of the alternative simplified credit with NJBiz.

  • A US tax break Israeli startups can utilizeFebruary 19, 2019

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  • Thumbnail Headshot Yair Holtzman
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    As the Research & Development (“R&D”) Tax Credits Group Practice Leader, I am responsible for the leadership, strategic focus and business performance of the group. In this role, I oversee the R&D group’s growth, vision, diversification and development.

  • What is the R&D Tax Credit?January 29, 2019

    The federal research and development (R&D) tax credit under Internal Revenue Code (IRC) section 41 was first introduced by Congress in 1981. The purpose of the credit is to incentivize U.S. companies to continue and increase spending on research and development within the U.S.  The R&D tax credit is available to businesses that uncover new, improved, or technologically advanced products, processes, principles, methodologies or materials.  In addition to “revolutionary” activities, in some cases the credit may be available if a company has performed “evolutionary” activities such as investing time, money, and resources toward improving its products and processes.

  • Anchin State of the Construction Industry 2017
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  • Frank Schettino and Marc Federbush in Fashion Mannuscript Magazine
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  • Anchin Alert
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  • Anchin Alert
    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. 

  • Anchin Alert
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  • Anchin Alert
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  • Anchin Alert
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    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.

  • Anchin Alert
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    The Senate and House conference committee made further progress on its tax reform plan.

  • Anchin Alert
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  • Anchin in the News
    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.

  • Anchin Alert
    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. 

  • Anchin Alert
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    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.

  • Anchin Alert
    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.

  • Anchin Alert
    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. 

  • Anchin Alert
    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.

  • Anchin Alert
    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.

  • Anchin Alert
    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.

  • Anchin in the News
    Is a U.S. ‘Patent Box’ a Good Idea?May 19, 2016

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  • Anchin Alert
    Assessing Section 199 and IRS Released Proposed Regulations to Determine Deduction EligibilityApril 14, 2016

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  • Anchin Alert
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  • Anchin Alert
    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.

  • Anchin Alert
    New York City-Corporate Income, Miscellaneous Taxes: Authorization for Biotechnology Credit Extended for Three YearsOctober 7, 2015

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  • Anchin Alert
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  • Anchin Alert
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  • Anchin Alert
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  • How Does Tax Reform Impact You?

    6 Recent Tax Law Changes That Technology Companies Need to Know07/25/2019 Automatic Extension Available for Making Portability Election1/31/2019 What Should Businesses Know About Qualified Opportunity Zones?1/15/2019 How Can…

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