When I talk to small business owners about Research and Development (R&D) tax credits, they tend to have lots of questions. Some know of these credits but think their business doesn’t qualify, while many have never heard of the credit at all. In fact, only about 20% of all eligible businesses actually claim the tax credit. Our mission at Ardius is to get these credits into the hands of eligible small businesses so they can use them to grow and better support their employees and families.
As we head into another tax season, I want to share the most common misconceptions I hear in these conversations and what I wish every small business owner knew about R&D tax credits.
“My company doesn’t qualify because…we don’t do R&D.”
A company’s R&D activity is the key to determining whether it’s eligible for this credit. When small business owners hear R&D, many picture a scientist in a white lab coat. Because their business doesn’t do hard scientific research, they believe it isn’t eligible.
In reality, many kinds of activities qualify as R&D across both technical and non-technical roles and expenses. Take, for example, makeup company Alleyoop – whose creation of multi-purpose products and innovation to reduce packaging waste both qualify as R&D. Ardius helped them find more than $223,000 in tax credits.
To find out whether your company is eligible, start here.
…it isn’t profitable / doesn’t have revenue.
In 2015, the PATH Act expanded R&D tax credit access to small companies and those without tax liability – or even revenue. Organizations without revenue can use the credit to offset payroll taxes. Even if your business does not earn taxable income, it likely has payroll taxes, meaning it may be eligible.
…my CPA hasn’t told me about it.
CPAs at small businesses have a lot on their hands! Many focus first and foremost on compliance (rightly so!) and aren’t up to speed on the intricacies of every new tax law. Others have decided that the R&D tax credit application process is too time consuming to complete alone. It’s not easy for an individual CPA to determine a company’s eligibility, compile the substantiating documents and submit an application. Ardius can work with your accountant to help calculate and claim your tax credits using our automated software.
“The R&D tax credit is taxable income.”
The R&D tax credit is not taxable income; you can think of it as free money. In other words, you don’t need to take on investors, give up equity or take out a loan to get it. The money you receive is all yours to reinvest in your business.
“I can’t claim tax credits from previous years.”
If the statute of limitations hasn’t passed and your company is profitable, you can claim tax credits retroactively. If you’re in this position and your business is eligible, don’t wait to apply – the more time passes, the harder it gets to create an amended tax return.
“Applying for an R&D tax credit will be time consuming and expensive.”
Business owners often tell me that they’re too busy building their company to spend time applying for a tax credit. I understand and agree! It can be challenging to justify this application to a team or board who haven’t heard of this tax credit before and may be skeptical.
This is where Ardius comes in. Our specialty is figuring out whether your business qualifies and helping you apply. Our software simplifies a complex process by quickly pulling from large amounts of data like expenses and tax documents. Importantly, this process is risk-free. If your business doesn’t receive a tax credit, Ardius will not send you a bill. Think of it like this: if your business qualifies, you’ve spent the last year doing the work it takes to get the credit. We can help you take that last step to apply.
“It’s too good to be true!”
It’s easy to see why so many small business owners believe this: the R&D tax credit is an incredibly useful but misunderstood and underutilized resource. In 2019, more than $60 billion in R&D tax credits went unclaimed by small businesses simply because so many business owners didn’t know about them or have the tools to apply. If you’d like to learn more or find out if your business is eligible, get in touch with us! We have a team of experts who would love to work with you.