Common Misconceptions About R&D Tax Credits For Startups

small business

R&D Tax Credit


Deborah Roth, CPA
May 15, 2024

Each year, numerous qualifying businesses miss out on the advantages of R&D tax credits. The IRS data for 2014 revealed a whopping $12 billion in claimed R&D credits, yet many eligible entities, particularly startups without proven profits, fail to take advantage of this opportunity. The primary reason behind this underutilization likely stems from limited awareness among taxpayers and their advisors. Lack of knowledge about the R&D tax credit often leads businesses to overlook this potential benefit, wrongly assuming their activities don't qualify.

MYTH #1 Qualification is Limited.

Contrary to popular belief, many businesses engage in activities that qualify for the R&D tax credit without realizing it. This credit extends beyond specific industries and is accessible to companies of any size, ranging from software developers to breweries. If your business involves technology-based activities, improvements, and customer-oriented solutions, chances are you likely qualify for the R&D tax credit.

MYTH #2 Restricted to Income Tax Application.

One prevailing myth is that the R&D tax credit can only be applied to income tax. However, the truth is that it offers greater flexibility. For qualified small businesses with revenue less than $5 million and within their first five years of operation, this credit can be utilized as a payroll tax offset, up to $250K per year. Even if you have no payroll to offset, you can carry the credit forward to the next quarterly return. What's more, the credit has no expiration date, remaining available until fully used against payroll tax. Furthermore, any unused credits can still prove beneficial, even upon exit.

MYTH #3 Insignificant Savings.

One common misconception is that the R&D tax credit yields negligible savings. However, numerous real-life examples demonstrate the substantial benefits it brings. Companies have saved tens and even hundreds of thousands of dollars through this credit. It's essential to understand that the R&D tax credit is not a mere deduction but a direct reduction of taxes owed. Additionally, our technology-driven solution streamlines the credit claiming process, significantly reducing overall fees and making the savings even more valuable.

Expert Support For R&D Tax Credit Claims offer comprehensive assistance throughout the entire process of claiming the research and development credit for your small business or startup. They can help clarify the credit's applicability to your specific situation, guide you and your team through the study and calculation process, and provide valuable support during any potential audit.

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