R&D Tax Credit News
Companies Think Optimizing Their R&D Tax Credit Isn’t Worth Their Time. Here’s Why They’re Wrong.
February 21, 2020
Recently, I was talking to a company that was using an accounting firm to assist with their research tax credit.
We went back and forth on the differences between using engineers and accountants to calculate the credit (we’re fans of using the experts), and then came the killer.
The prospect admitted that we could probably generate a higher credit for them, but they already have enough headaches. Going through the process would take too much time; they don’t have the bandwidth to handle another project.
The all-too-familiar “dial tone” sound ensued.
We hear a lot from companies that, while a bigger credit would be great, the process is just too arduous. That the gain isn’t worth the time investment.
The secret? It doesn’t have to be painful.
The Root of the Problem
There are several underlying reasons that make pursuing a better credit such a pain:
- The Annual Time Suck
Companies remember the amount of time it took the first year they took the credit. Despite working with the same provider, it still takes the same amount of time year after year.
- Other Projects Take Priority
Companies are already taking SOME of the credit, and optimizing their credit isn’t as much of a priority as other initiatives such as new business development, new product releases or project deadlines.
- Provider Roulette
Even though the company has the same provider, they work with different staff members every year. That means their engineers are spending countless, expensive hours retraining the provider’s accountants on the basics of their processes, products and technology.
Is the Hassle Worth It?
With all that time and effort down the drain, who wouldn’t skip the mess entirely?
But it doesn’t have to be a loss. It’s possible get the additional credit, without the pain. The key is in choosing specialists, not generalists.
Imagine that you had expressed concern to your family doctor about a spot on your hand, and their advice is to wait and see. However, you later happen to meet a dermatologist, who says that characteristics of the spot are consistent with a type of melanoma and strongly urges you to make an appointment with their office ASAP.
What would you do? Go back to your doctor and ask them again? Or would you listen to the specialist? The truth is that generalists simply can’t have the same level of expertise that specialists have developed through years of focus and experience.
Working with the specialist will get you to the right answer, with a fraction of the hassle.
Trust the Specialists
When it comes to your R&D tax credit, choosing specialists can neutralize the pain involved in getting the additional credit.
- Get Time Back
Using an expert to handle your R&D credit should give you MORE time to focus on your business, not less. Specialists will know where to look, without needing babysitting from your engineers. Because they are engineers themselves, they already have an understanding of the terminology, the processes, the workflow. They start already knowing the basics, and (even more importantly) they know what details to ask for in order to optimize your credit.
- Lead, Don’t Follow
Companies who are already taking the credit often trust that it is being handled in their best interest. Maximizing the credit drops off the priority list. Multiple times, companies have shared that they would rather focus on bringing in new business than spend time increasing their credit.
Picture this. You discovered a specialist could increase your credit by 30-50%, and that increase totaled approximately $65,000. However, there were other priorities in the business (such as new customer acquisition) that make you hesitant to pursue the opportunity.
That $65,000 cash benefit is equivalent to the following top-line revenue required to generate the same cash benefit:
| Industry | Net Margin | Approx. Required Revenue |
|---|---|---|
| IT Consulting and Managed Services | 5.68% | $1,300,000 |
| Energy Exploration | 7.25% | $1,000,000 |
| Transport and Logistics | 5.76% | $1,300,000 |
| Software and Programming | 17.67% | $425,000 |
| Manufacturing | 10.63% | $700,000 |
| Biotechnology | 6.78% | $1,100,000 |
Source: Average Net Margin %s from CSIMarket.com
How long would it take you to sell 1.3 million?
You’d likely be chasing those sales for six months, or even a year.
However, if you could show the higher-ups that you’d gotten that same cash benefit from an R&D credit maximization project that would take a fraction of the time? That could be a game-changer.
- Pick the Right Partner
Instead of the big firms and their revolving door of accountants, imagine seeing the familiar faces of the same degreed engineers, year-after-year.
Your team should not have to spend time training new accountants each year. Instead, develop a relationship with a long-term partner, who not only understands your business but is able to help you implement efficiencies. And every second you invest will pay off in the future, with less staff time and fewer meetings in subsequent years.
If you are interested in talking to a specialist to find out what your maximum credit looks like, contact us to learn more.
About: John, Business Development Specialist, has a finance degree from Miami University. He lives in Indianapolis with his wife and three kids. When not spending time with his family, you can usually find him on a golf course.
Featured Projects
