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.
- 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
- 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.
- 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.
- Changes to R&D Expensing—Unpleasant Surprise to Taxpayers and Great Opportunity for BipartisanshipMarch 18, 2021
- INSIGHT: Financing Innovations in Emerging Technologies With R&D Tax CreditsAugust 27, 2020
- 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.
- 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.
- Anchin: The Virtual Strategist CFOJune 12, 2020
Chris Noble explains how Anchin's outsourced accounting services group, now rebranded as the Client Accounting Advisory Services Group (CAS), is a natural extension of Anchin's proactive client service model.
- 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.
- A Tax Credit for COVID-19 InnovationMay 5, 2020
Manufacturers repurposing production and research to support the relief effort may qualify.
- 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.
- The CARES Act: Commonly Asked Questions for Technology CompaniesMay 1, 2020
With Congress swiftly passing the largest economic stimulus package in history, it’s no surprise that the provisions of the CARES Act raised a significant amount of questions. In the past week alone we’ve seen more guidance and continued confusion amongst taxpayers. We hope the confusion subsides as more guidance is released over the coming days. Although we have received many questions, here are some of the most commonly asked questions we have recently discussed with technology companies.
- 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
Many Israeli companies with connections to the United States have benefited extensively from the research and development tax credit, which has recently become significantly more accessible.
- Meet the Anchin R&D Tax Credits Team: Yair HoltzmanJanuary 29, 2019
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.
- Industry Spotlight – Architecture, Engineering & ConstructionJanuary 29, 2019
Architecture, engineering, and construction (“AEC”) firms frequently invest substantial resources to advance and improve building designs and processes. When contractors, architecture and engineering professionals develop and design new and innovative techniques, their activities may qualify for the R&D tax credit. As a result of unique project aspects and ever-changing structure and energy codes, many projects that appear similar on the surface are, in fact, at least partially new or improved with respect to function or performance.
- More than HistoriansOctober 1, 2018
Almost by definition, most accounting firms are historians, simply reporting the results of a client’s recent past. But that’s not even half the job, according to Marc Federbush, leader of the Fashion Group at New York City-based accounting and advisory firm Anchin.
- 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?
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
- Architecture, Engineering and Construction Industry's Eligibility to Claim R&D Tax Credits June 26, 2020
Section 41 research and development (R&D) tax credits are available to Architectural, Engineering, and Construction (AEC) industry companies that design and develop new or improved products, processes, methods, techniques, or materials. In addition to “revolutionary” activities, research credits may also be available to companies performing “evolutionary” activities or incremental improvements to their own products and production processes.
- INSIGHT: Save Money While Fighting CyberattacksDecember 12, 2018
The Research and Development tax credit is a U.S. business incentive offered to companies that experiment with emerging technologies, including cybersecurity solutions. The article offers guidance related to this section of the tax code and highlights the types of core business activities that can qualify for this generous credit.
- A Tactical Approach to R&D Tax Credits for Defense ContractorsNovember 12, 2018
The purpose of this article is to help private military defense contractors obtain a better understanding of the federal R&D tax credit and how it may help enable military defense innovations. This article also explores recent defense innovations for land, air, sea, cyberspace, and outer space threats and how the federal R&D tax credit incentive offered may be able to save a business money when developing these solutions.
- 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
- Phillip Ross, Leader of Anchin's Construction Industry GroupMay 12, 2020
Phillip Ross shares how Anchin's Construction Group meets specific client needs and helps fuel clients' growth.
- Chris Noble, Leader of Anchin's Technology GroupMay 11, 2020
Chris Noble discusses Anchin’s Technology Industry Group and the services they provide for entrepreneurial, venture capital and private equity-backed businesses ranging from emerging start-ups to growing and established technology companies.
- Marc Federbush, Leader of Anchin's Consumer Products GroupMay 11, 2020
Marc Federbush explains why Anchin is the "go-to" accounting firm for consumer products companies.
- Phillip Ross, Leader of Anchin's Architecture and Engineering Industry GroupMay 9, 2020
Phillip Ross shares how his group's value-added expertise differentiates it in the marketplace.