Sunstone Trust Company is a Trust Tech incubator for products and services that can benefit our clients and their financial teams, especially accountants. That is why we strongly believe that this new product by Zhen Wang, founder of Technology Credit can simplify your R&D Tax Credit and be very helpful to our clients.
What Does a R&D Tax Credit Study Do?
There are two simple steps involved in each study:
- Step 1: If your company performs activities such as software development, hardware development, is a bio / pharma R&D company, or does pilot manufacturing, we can help them earn refunds on about 10% of their annual spending and up to $250,000 in payroll or income tax refunds each year.
- Step 2: This step includes data gathering and calculation, documentation through a project and company activity narrative, filing claims through annual tax returns, filing additional claims through a payroll company, and tracking refund checks in the mail from the IRS. Best of all, your company’s claims for a payroll refund can continue for up to five years once funded.
- How Technology Credit’s services can help you:
– Quality – Full documentation
– Refund Tracking – An integrated service with your CPA and payroll system
– Efficiency – They only need 45 minutes of your time
– Best Pricing – You never need to pay them before receiving your refunds and they offer the guaranteed lowest service fees in the market
What Is R&D Tax Credit’s Promise?
They are trusted by CPAs to outperform every competitor by streamlining the R&D Tax Credit Study for every start-up, especially VC-backed companies.
What Is the Federal Government’s R&D Tax Credit?
This tax incentive, also known as the Research and Experimentation (R&E) Tax Credit, is available to companies that performed qualified activities in any given year, to offset their income tax, or to reduce their company’s payroll tax.
Performing Qualified activities are required to meet the IRS Tax Code, but they are fairly easy to qualify for if you or your company provide:
- Software or firmware development
- Engineering involving mechanical, civil, electrical, or industrial
- Bio-tech product or process development including drugs, treatment, or process improvement
- Medical device development
- Pilot manufacturing or yield improvement
- Any product or process development that leverages principles of science
How and When Can You Use R&D Tax Credit’s Services?
- The Traditional Method – R&D Tax Credits can be used to offset the corporate income tax. Therefore, your company needs to be profitable to take advantage of this credits. If you are not profitable, the credits still can be captured / calculated and carried forward for 20 years. If you are an S-Corp or a partnership, then the credits become flow-through credits to individual partners.In addition, your company can claim refunds for up to three past years (also known as the Statute of Limitation), or up to 19 years ago if your company never made any profit.
- The Qualified Small Business Method – Since 2016, the PATH Act (Protecting Americans From Tax Hikes) has allowed a Qualified Small Business to allocate the credits to offset income tax or the company’s payroll portion of the credits.A Qualified Small Business is defined as:
– A company with no gross receipts (not even interest income) five years ago from the current year
– A company with less than $5,000,000 of gross receipts in the current year
- Timing – If you are a Qualified Small Business, you can only use the credits to offset payroll when you make a timely election on the current year return. So, it is very important not to miss this free, but critical, tax planning step.
An Example: The Simple Math
If you hired an engineer to develop a mobile application last year and you paid $100,000, then your R&D credits on your 2021 Tax Return are going to be about $10,000 (typically 10% of the expense).
If you had corporate income tax last year, you could use that $10,000 to offset the taxes. If you didn’t have a profit last year, and you qualified as a small business, then you can use the $10,000 to offset your next quarterly FICA Payroll Tax, which is capped at $9,114 per person per year for the employer. (As always, please discuss your particular situation with your accountant.)
FAQs About R&D Tax Credit
- What type of expenses can qualify?
Wages, supplies, cloud computers, and contractor costs.
- If I outsourced my product or process development, can I still qualify?
Yes, as long as you own the result of the development.
- When should I start the planning?
Typically, before you file your most recent year’s tax return.
- Who should I reach out to for this tax planning?
This is a fairly complex tax matter and requires subject matter professionals to perform the study. Traditional CPAs are not qualified. Look for CPAs who have specialized knowledge with at least 4-5 years of R&D tax audit experience.
- Is there a maximum amount I can get as a credit?
Under the traditional method, there is no maximum as long as you incurred qualified expenditures and you have enough tax liability to offset this year or in future years. Under the Qualified Small Business method, you can claim payroll tax offset for a maximum of five years, and for up to $250,000 per year.
Request a R&D Tax Credit Demo.
To find out if your business may be eligible for up to $250,000 tax savings annually, click here to request a demo.
About The Founder
Based in Los Angeles, California, Zhen Wang focuses on helping start-ups with R&D tax credit claims. He has over 11 years of R&D tax credit experience in the U.S., including extensive IRS and state tax audit expertise. Zhen developed a SaaS-based approach for claiming R&D credits for start-ups with a comprehensive service offering at no upfront cost.
Zhen also provides free, unbiased advice to many start-up founders and incubators on finance, tax, and operations.
Prior to establishing Technology Credit, Zhen was an Ernst & Young (EY) US R&D tax credit leader in the Southern California markets, and EY Greater China’s R&D leader. He is a licensed CPA, with both Bachelor and Master of Arts degrees in Tax and Accounting from Brigham Young University in Utah.