RD tax credits are some of the most lucrative tax incentives offered today for companies creating new products and improving manufacturing methods. For startups and privately-owned companies that qualify, they can free up capital necessary for scaling growth. For bigger companies, R&D tax credits can help in multi-year tax planning and savings. However, they continue to be the most under-utilized credits of both CPA firms and CEOs and CFOs.
There is a reason why the federal government has included R&D tax credits into the tax code: they encourage economic growth by providing high-paying research and development-related jobs in the United States.
Hundreds and thousands of organizations in the United States likely qualify for this tax credit yet remain unaware of the opportunities before them. This is why a lot of accounting firms and tax experts work hard every day to get the word out. They do this by reaching out to companies that qualify, release write-ups, keynote conferences, and teach CPE-accredited courses for CPA’s all over the country.
In this article we will be discussing about seven important questions you can ask to help you choose the best professionals to help you with your R&D tax credits.
Important Questions to Ask:
1. Client Profile
Asking about the client profile is the first and most basic question you need to ask. Do the R&D tax credit experts have experience in your field or of your clients? Identifying, gathering, and documenting R&D tax credits can differ depending on whether your client is in the life science, aerospace, or software developing industry.
2. Do They Specialize in Both Federal and Multi-State R&D Tax Incentives?
Besides being knowledgeable in qualitative and quantitative R&D tax credit programs, it is also important for the specialist to be knowledgeable with multi-state level tax laws that encompass state-level administrative authority, state statutes, and state-level judicial interpretations. When working with any tax expert, make sure they are familiar with R&D tax credit opportunities in your state. Furthermore, if a company has plans for regional or national expansion, it only makes sense to focus on locations where there are tax-incentives related to the business. Choosing the right RD tax credits specialist will not only add value to your current tax picture, but it can also be beneficial to your future strategic planning. Remember that hiring a specialist with national proficiency will cover your present and future needs.
3. Do They Have Enough Experience in the Field of R&D Tax Credit?
The R&D Tax Credit has been around for a long time now. It was originally included to the U.S. Internal Revenue Economic Recovery Tax Act of 1981 and was meant as a temporary provision. Besides the only one year it wasn’t renewed, the program has been available ever since and became permanent in 2016. RD tax credits is a very complicated and deep subject involving tax practice. It requires years of study on industries, state statutes and federal regulations and how they all progress and change to be profitable in today’s audit environment at the federal and multi-state level.
Simply put, the more experience, the better. The R&D tax credit expert you hire should make recommendations that can significantly influence bottom line results. They must also be competent—a characteristic that goes well with experience.
4. How Do they Identify and Claim R&D Tax Credits?
Do not work with a company that is unable to explain or articulate their methodology from a quantitative and qualitative point of view. How do they identify qualifications for tax credits? You can’t really substitute onsite discovery and personally interviewing those involved in qualified activities.
- Documentation –how do they document their work? The answer to this could depend on a number of factors. For instance, is your business or the activity you want to claim regulated or unregulated? Regulated businesses in the defense and aerospace and the life sciences industries have meticulously documented their research and development on a contemporary basis. Unregulated businesses, on the other hand, may have unsuccessfully compiled contemporary records. In this case, you’d want to work with an R&D expert that will search for what can demonstrate the R&D efforts. In the digital space, this could refer to emails or texts between researchers as they work through issues.
- Collection –do they provide assistance in the collection of documentation to support claims? If the answer is no, then go find another tax expert.
- Final Deliverables –you must expect and be given an executive summary report that analyzes the quantitative and qualitative aspects of the claim. It must provide the connection between the qualified activities and the individuals who performed them.
- Reports –what are the repots made of? Besides the executive summary, the report must also have a professional sample of the contemporaneous documents supporting the claim.
- Audit –in case an audit is performed, will the tax credit expert be involved? An R&D tax credit expert’s task is not only limited to the deliverables. Due to the complex nature of claiming RD tax credits, audits are not uncommon. It is the expert’s responsibility to protect their client and do what is needed in support of a claim.
5. How Do They Price Services?
According to Circular 230, federal level tax services are prohibited from being priced on a contingent fee basis. Look for a tax expert that charges based on the time and expense incurred in performing their services or at a fixed fee.
6. What is Their Service, Support, and Partnering Philosophy?
The best R&D tax credit companies rely on punctual filings, clear and regular communication and a lot of hard work. A client-centric culture is necessary when choosing a tax credit expert. It would be in your best interest to have a good partnering relationship with your tax expert.
Try to observe if they provide top-notch customer service, if they do everything to reach a successful conclusion, or if they provide support in what you can contribute to the process.
7. How is Their Record of Sustainability on Audit?
Because it’s not unusual for R&D claims to result to audits, you need tax credit expert that has a solid record of defending and sustaining credits. This is very important so ask for some specific examples of how the expert was able to retain credits when challenged through audit. Find out how they were involved in the entire process.