You know the feeling when you find $20 in your pocket that you forgot was there?
Or have you seen the late-night infomercials about all the “found money” just sitting around waiting for you to claim it?
It’s exciting stuff — the kind that makes your pulse race and your mind wander to the endless possibilities available to you and your newly found money. But then the nagging voice in the back of your head questions, “Are there other savings opportunities I may be missing out on?”
As a startup, you may be overlooking something more lucrative than that extra $20. It’s called a Research and Development (R&D) tax credit and may even result in CASH!
The Basics: Beginning this year, startup companies with gross receipts of less than $5 million may elect to claim the R&D credit against payroll tax liabilities. Congress wants to encourage companies to remain persistent in developing new products and has created a way for companies investing in these activities to save money.
Almost any for-profit company working on new products or processes may qualify, regardless of whether the company is currently making money. Specific items might include software application, new tangible products or even upgrades to older products. Another great indicator is if you have engineers, computer programmers or other technicians on staff.
Who qualifies: We won’t go into the specifics of the calculation here, but basically, if you’re spending money on personnel and outside professionals to research a new product or platform, you’ll likely qualify for the credit.
The hardest thing for most companies is trying to compile all the research and development costs at the end of the year. While all good companies track spending, they don’t necessarily track costs for specific types of tasks, so when it comes to the end of the year, it may be difficult to accumulate the actual research costs incurred.
The best thing to do is make sure your accounting platform is setup to capture these costs as they occur. Understanding what type of costs can go toward the credit is critical to maximizing the accumulation. For example, does an administrative assistant helping a computer programmer compile data qualify? The answer to that and similar questions depends on the business.
The Bottom Line: Now is the ideal time to talk with your accounting and tax advisors to guarantee you are taking the proper steps to ensure you don’t leave money on the table.
The only question you should be asking yourself now is, are you ready to discover your company’s hidden savings? After all, in the words of another late-night infomercial, “It’s your money”.
Dan Schmidt is the founder and CEO of The Emerging Business CFO, a virtual business accounting and financial advisory firm that works to free founders and entrepreneurs from the stress of managing the daily operational grind. The company offers bookkeeping, accounting, cash flow management, payroll and CFO services.
Ben Anderson is a CPA and manager of CBIZ’s Kansas City office, where he works with entrepreneurs, established businesses, private equity groups, angel investors and venture capital firms to grow the value of their business interests. CBIZ provides accounting, employee benefit guidance, risk consulting and retirement plan services.