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Unlock Tax Savings with the R&D Tax Credit

Small businesses, which account for 65% of new jobs, spend significant amounts on research and development annually. However, many of these businesses are not leveraging the Research and Development (R&D) Tax Credit, which could save them substantial amounts on taxes.

Understanding the R&D Credit

The R&D Credit is available to companies involved in creating new products or processes or improving existing ones. This credit can save your company thousands, if not hundreds of thousands of dollars in taxes. For more detailed guidance, you can visit Hito LLC’s website to get a free R&D booklet.

General Benefits

Overpaying taxes can stunt innovation. The R&D Credit allows businesses to reclaim funds that can be reinvested into development, enhancing product quality and fostering growth. This credit is especially valuable in challenging times, such as the post-Covid-19 era, where innovation is crucial for recovery and growth.

Payroll Tax Offset

The payroll tax offset within the R&D Tax Credit allows eligible small businesses to use up to $250,000 of their R&D credits annually to offset payroll tax liabilities for up to five years, benefiting startups and businesses not yet profitable. To qualify, businesses must have less than $5 million in gross receipts and no receipts before the last five years. This provision improves cash flow by reducing payroll taxes and supports early-stage companies engaged in R&D. The credit is claimed by filing Form 6765 with the federal tax return and applying the offset on Form 941 quarterly.

State and Federal Benefits

While the R&D Tax Credit is a federal benefit, many states offer additional state-specific R&D Tax Credits. For instance, in California, R&D Tax Credits can be carried forward indefinitely, whereas federal credits can only be carried forward for twenty years. California also allows taxpayers to amend previous year’s tax returns to claim missed R&D Credits.

Common Misconceptions About the R&D Credit

  1. It’s Just for Large Tech Companies The R&D Credit is for companies of all sizes and across all fields. The PATH Act of 2015 eliminated the Alternative Minimum Tax Bar, making the credit accessible to businesses with $50 million or less in gross receipts.
  2. It’s Just for One Kind of Research Many businesses wrongly assume they don’t qualify due to lack of patents, standard lab research, or project failures. However, the credit covers a wide range of activities that are “technological in nature” and failed projects can still qualify if properly documented.
  3. It Won’t Help This Year R&D Credits can be carried forward for up to twenty years and backward for one year. This is beneficial for startups and small businesses that have yet to become profitable, allowing them to save on future taxes.
  4. It’s Too Complicated If you create or improve products and are in industries like Manufacturing, Architecture, Engineering, Construction, Software, Agriculture, Food & Beverage, MEP Contracting, Tool & Die, or Life Sciences, it’s worth investigating. Consulting a tax professional specializing in this credit, like those at Hito LLC, can simplify the process.

Next Steps

To ensure you maximize your R&D Tax Credit, consult with an R&D specialist. A specialist can assess your eligibility, estimate potential benefits, and help with the application process. This ensures compliance with IRS regulations and provides support in case of an audit.

At Hito LLC, we specialize in the R&D Tax Credit and offer a free 30-minute discovery call to help you determine your eligibility and potential savings. If interested, set up your call with the button below and take your first steps towards significant tax savings.

 

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