Q&A Tax Credits

What is a tax credit?

• Tax credits reduce your tax bill on a dollar for dollar basis. If you receive a $5000 tax credit, you reduce your tax bill by $5000.
• Because tax credits directly lower your tax bill, they tend to be more beneficial than tax deductions, which only reduce the amount of your income that is subject to tax and are therefore prorated to your tax rate.
• Refundable tax credits can be claimed by a taxpayer even if they owe no taxes. This means that even if a startup client is running at a loss, and the amount of the credit exceeds the taxpayer’s tax liability, the government will issue a tax refund for the difference.
• Non refundable tax credits can only reduce a taxpayer’s tax liability to 0. You will only receive a refund if you owe taxes to the government.
• Popular business tax credits include the R&D tax credit, the Employee Retention Tax credit, tips credits for restaurants, and retirement credits.

Tax rules change year over year. How can SMBs and accountants stay up to date with the latest policies so they can get the most savings?

• There are a number of ways to stay up to date on the latest policies.
• The IRS website is the source of truth. Sign up for alerts, read their latest guidance, and review the tax code.
• You can subscribe to newsletters from small business focused partners such Gusto and Ramp to access more digestible information on specific policies that are relevant to your business.
• Stay curious and find learning opportunities (such as this webinar session) with experts in the tax and finance industry. Different providers have different areas of expertise, so it’s important to gather information from different sources for a more complete picture of how you can save.

What are some tools you would recommend for SMBs and accountants ahead of tax season?

• These days, there are a number of tools available to help you automate administrative tasks for your business. Gusto is a popular payroll provider that automatically files your taxes, helps with compliance, and identifies tax credits to help save you money you may never have known you qualified for.
• Ramp offers corporate cards and spend management software that help thousands of businesses manage their expenses, pay their bills, and close their books—and save an average of 3.5%.
• Popular accounting software would of course include Quickbooks, Xero, Sage Intacct, and Netsuite.

What are some tax credits that SMBs should be taking advantage of?

The R&D tax credit is a dollar-for-dollar tax incentive for US-based companies that innovate. 

Companies that develop new or improved products or processes, reduce uncertainty through innovation, use “hard science” like engineering, biological, or computer science, and/or test multiple variables may all qualify for the credit.

Benefits of the R&D tax credits:

• Startups
  • Can maximize up to $1,250,000 in 5 years in payroll tax offsets
  • Utilize credits to offset payroll taxes up to $250,000 per year for five years
  • Payroll tax offsets can start the quarter after filing taxes
  • Credits captured – not utilized can carry forward
• Profitable Companies
  • Can claim unlimited tax liability offset- dollar for dollar
  • Can retroactively claim past credits up to 4 previous years
  • Can carry forward for 20 years

Which activities qualify for the R&D tax credit?

At Ardius, we specialize in discovering qualified activities that get missed by everyone else.  For instance, its often overlooked in capturing credits for both your technical and non-technical roles and expenses.

We’ve found credits for companies across all industries, sizes, corporate structures, and profitability.  With 100 years of R&D tax credit expertise and our machine learning software we’ve learned how to maximize your R&D tax credit.

What type of companies qualify for an R&D tax credit?

The following types of companies may be able to claim this credit:

• Pre-revenue startups may be able to claim R&D credits up to $250,000 per year to offset payroll taxes in 5 separate taxable years for a total of $1,250,000
• Profitable companies can claim unlimited tax liability offset. These companies can retroactively claim past credits for up to 3 previous years.  More information on R&D tax credits and how to qualify is available on the IRS website

What if I already have an accountant or CPA? Can’t they claim R&D credits for me?

We can work with your accountant to help calculate and claim your R&D tax credits. To calculate an R&D tax claim, accountants must be well versed in the original law from 1981, the Alternative Simplified Credit (ASC) calculation added by the Tax Relief and Health Care Act of 2006, and the 2015 PATH Act which expanded the incentive to small and medium-sized businesses. If an accountant is trained on the above, it’s still time-consuming to track eligible activities monthly and prepare to file each year.

Our technology automates the process, scanning your payroll and accounting data for qualifying credits and saving countless hours. Then, our tax credit experts review your claim, assist you or your accountant through filing, and can provide support in the rare case of an audit.

Have more R&D tax credit questions, talk to a specialist.