Research and development (R&D) tax credits have long been regarded as a critical support tool for U.S. small businesses and their innovation efforts, allowing them to deduct the cost of qualified research and innovation from their organization’s taxable income.
But under new guidance from the IRS, they might not be so easy to claim when submitting an amended return.
Companies must now provide the following information to qualify for R&D credits under these circumstances:
- Total qualified employee wage expenses, contract research expenses and supply costs
- All business components that support the factual foundation for the credit
- All research activities performed by business constituents
- List of individuals who performed each research activity
- Information each individual looked to discover
This new documentation is in addition to the previous requirements, which include:
- Payroll information for any employees involved in R&D
- General ledger reports listing any R&D-related expenses
- Timekeeping records for anything related to R&D
- Copies of contracts and invoices paid to any third-party that conducted research
- Marketing materials, blueprints, etc. and any other documentation that presents the process and the effects of the research
So what does this mean for small businesses?
A tougher road to qualification
For small and medium-sized businesses, these credits are a form of vital capital to propel growth and increase their competitiveness. But the challenge lies in having the resources to organize, compile and submit the necessary documentation. Missing just one piece of information could result in an invalid claim.
The IRS hopes these new requirements will help weed out businesses that aren’t eligible for the credit. All businesses, however, will be granted 45 days to complete a credit refund claim during this one-year transition period. Going forward, we may see these changes apply to all R&D credits — not just on amended returns.
Claiming what is rightfully yours
Don’t miss out on an opportunity to collect valuable funds for your small business. Contact Magone & Company today at (973) 301-2300 for guidance and support regarding this matter