By Brady Bryan, JD, CEO and Robert Henry Wallace III, EIT, Engineering Associate
For those who are unaware of the R&D Tax Credit, you have come to the right place. For those who know about the credit, you have also ventured to the right place. The Credit for Increasing Research Activities has rapidly become an extremely viable option for businesses small and large to take advantage of the work they are already doing to alleviate tax liability. Since its introduction into the tax arena, the R&D credit has evolved in many ways to become more applicable to the companies that need it most. In 2003, the government recognized that innovation happening at the company level advances all of science and thus abolished a Discovery Rule that prevented claiming the credit unless it advanced a field as a whole. In 2006, the government added new flexibility to the way the credit can be claimed in the form of an Alternative Simplified Credit calculation. And at the very end of 2015, the R&D credit was made a permanent incentive. These reforms certainly pushed the R&D credit as an option for many, so why don’t more companies claim the benefits?
The answer lies in the “R&D”. This benefit can be seen from the outside as a legal-heavy endeavor; and while this is a part of the whole, the other half of the story lies in the technical abilities of those preparing the credit. And while BRAYN employs a team of lawyers that help in preparing the studies and defending them under audit, there is also a need for folks with an intimate understanding of principles of engineering, physicals and the like.
This benefit requires technical aptitude and experience on the company side to have a benefit to claim, but also technical ability on the preparation side to recognize and manifest the best benefit possible. This is exactly why BRAYN employs a team engineers.
It is a common misconception for companies conducting highly technical projects to believe they are not doing qualified work. This fear can be observed throughout the architecture, manufacturing, construction, and general engineering industries. The story is very similar when broken down to its core: “I am not sure that what I am doing can be considered research and development”. And, as if on cue to take the stage, inserting an experienced engineer that can speak their language creates a foundation of understanding and trust. When reading through the legal jargon that is known as Section 41 (the code governing the Credit for Increasing Research Activities), it is very easy to see how someone could become intimidated by the language.
If your tax consultant is also an engineer that has experience with the process to develop production drawings from an ambitious prototype, or has been on a construction site to know the importance spacing and site conditions can have on the final construction drawings drafted, it is much easier for them to explain how a company can qualify for the credit. The experience that BRAYN’s engineers bring to a study allow for identification of which of your company’s activities qualify under the legal definition of R&D.
In addition, there are multiple buckets of cost that can be easily overlooked if you do not have the trained eye to spot them. As an engineering firm develops a new prototype for testing prior to commercial production, the components of that prototype that can be claimed as a supply expense is dependent on a number of factors. If you insert a mechanical engineer into the situation to consult the client, a conversation can happen between client and consultant to truly break down the prototype into working parts that can and cannot be claimed. It is about more than the buzz words – it is about having an understanding of what you do.
Everyday there is a company somewhere working hard to move forward but not getting the full R&D credit they deserve. Even worse, they may not be claiming the benefit at all. Having an engineer on your R&D consulting team can make a world of difference. Leave the fears of the IRS and mal-qualification at the door; BRAYN has the technical background to identify your work, relate your work to governing legal code, and most importantly, understand how what you do can push you further than you’ve ever reached before.
Make sure to reach out to get your FREE Phase 1 estimate, or competitive bid today. We offer fixed-fees for engagements. Contact us today at 888.773.8356 ext 700 or firstname.lastname@example.org.