The Research & Development (R&D) Tax Credit. It’s been talked about among distributors, but that’s all that’s been done. During these discussions, M&D businesses may be overlooking the fact that R&D tax credits can actually be used to their benefit. You may be thinking, how does R&D mix with distribution? As long as your company has a focus on improving processes and procedures, it may qualify for the R&D Tax Credit. In this article, we will look at what the R&D Tax Credit is, and how distributors like you can take advantage of it.
Who Qualifies
The good news: You don’t need to be Google, an incubator in the heart of Silicon Valley, or an innovative tech company. All you need to be is a company trying to solve everyday problems, like a distributor simply trying to improve their processes. Let’s get specific—if you are working to reduce operating costs, trying to improve delivery times, researching new tracking software to better communicate with customers, developing software to manage your inventory, or trying to improve in any way to help better your competitive position, you may qualify for the R&D credit.
Applying the R&D Tax Credit: An Example
For example, let’s pretend you’re a distributor for a cosmetics company, and you want to improve your operational efficiency by 5%. Testing out new software for asset management, trying new processes, or even developing software to manage tracking documents may qualify you for the R&D Tax Credit. Transitioning your business into a green business and all the steps that lead to creating an eco-conscious company may also check off many qualifications. Whether you’re solving delivery problems, designing new processes, or developing software to better serve your clients or improve tracking of on-time deliveries, you have easy money waiting for you in the form of R&D Tax Credits.
Maximize Allowable Credits
While research credit varies from business to business, distributors of various sizes will benefit to varying degrees. Also, keep in mind that unused research credits can be carried back one year and forward 20 years.
Startups
A new provision regarding startups means that companies in their infancy may now qualify. Specifically, businesses with gross receipts of less than $5 million a year can claim a credit up to $250,000 against their payroll taxes.
Alternative Minimum Tax (AMT) Turn-off
Now, businesses with less than $50 million in gross receipts can claim the credit against their AMT. Due to this modification, small to mid-sized businesses can now take advantage of the R&D Tax Credit.
Qualified Expenses
Qualified research expenses include:
- In-house expenses for research
- Payment to personnel involved with in-house research (including direct supervisors and clerical support)
- Supplies used during research
- 65 percent of amount paid for outside contract research
Non-qualified expenses:
- Foreign research
- Research in social sciences, arts, or humanities
- Funded/subsidized research
With such a broad application, it is easier to qualify for credit now more than ever. If you’re uncertain whether your distribution business qualifies for the R&D Tax Credit, contact one of your local Sikich tax expert or learn more about our accounting, audit, and tax services at www.sikich.sikichdevelopment.com.
