What is the R&D Tax Credit?
A dollar-for-dollar tax incentive for US-based companies that innovate
R&D Tax Credit 101
R&D Credits by the Numbers
spent by businesses on
R&D efforts in 2019
R&D credits could have been obtained
from the federal government
R&D credits were claimed
by businesses in 2019
credits are not being claimed
and reinvested back into their businesses
Which activities qualify for the R&D tax credit?
At Ardius, we specialize in discovering the qualifying activities that get missed by everyone else, including capturing credits for both your technical and non-technical roles and expenses. We’ve found credits for companies across industries, sizes, corporate structures, and profitability.
My startup isn’t profitable and we’re not paying taxes yet. Can I still apply for the R&D tax credit?
Yes! Even early-stage, pre-revenue startups may use federal R&D credits against their payroll taxes. Don’t have payroll set up yet? The credits can also be carried forward as an asset on your balance sheet until you’re ready to utilize them.
What if my startup uses contractors for the qualifying R&D activities?
Whether you use individual contractors or a consulting company, as long as the work is qualified and done in the US, you should have no problem claiming the credit.
Does my business entity type matter?
The short answer is no, with one exception: non-profits (501c3s) do not qualify, because a business needs a tax liability to receive a tax credit. All other business types – including S Corporations, sole proprietorships, partnerships, corporations and limited liability companies (LLCs) – qualify.
Can R&D tax credits be claimed for past years (i.e. can they be claimed for previously filed tax years)?
Yes! If the statute of limitations hasn’t passed, R&D tax credits that offset income tax liability can be assessed and claimed retroactively. This option is only available for profitable companies. Filing an amended tax return may be required if you paid tax in years past, but that refund check will be worth it!
R&D tax credits that offset payroll taxes (e.g. for early-stage startups) cannot be claimed retroactively, but can be carried forward as a deferred asset on your balance sheet.
What if I already have an accountant/CPA? Can’t they claim R&D credits for me?
We work with your accountant to help calculate and claim your R&D tax credits. To properly file 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 expert CPAs review your claim, assist your accountant through filing, and provide support in the rare case of an audit.
Is the R&D credit taxable as income?
No, the R&D tax credit is NOT taxable income. You can think of it as non-dilutive capital for your business.
How will I receive the credits (e.g. in the form of a refund check)? How often?
The R&D tax credits and refundable amounts are generally received one of four ways, depending on your company and how you decide to utilize the credit:
Ways to Utilize Credits
- On an amended return against prior taxes paid (refund check)
- As a payroll tax offset, for startups with gross sales under $5M and less than 5 years of sales (quarterly refund check or credit from your payroll provider);
- To offset your current year’s income tax liability (filed with your tax return to reduce your amount owed);
- As a deferred asset on your balance sheet (carried forward for up to 20 years).
- Gusto customers receive 12 months of Gusto’s Real Time Credit Tracker, completely FREE! That’s a $1,200 savings!
This allows you to utilize your R&D tax credits to offset your payroll each cycle, until credits are exhausted. So instead of waiting for your quarterly refund check, you get to keep that money in your pocket!
Is the R&D payroll tax offset effective for both the employer and employee side?
The R&D credit and payroll tax offset occurs on the employer side, specifically the FICA-SSN portion if you are utilizing it as a C-Corp. If your company is an LLC, Partnership, etc., the benefit will flow through.
How do I make an entry for the R&D credit in our books?
If it’s not utilized or still a carryforward, the R&D tax credit is considered a deferred asset on your balance sheet. It is a below-the-line benefit and should be shown on your Income Statement or Profit & Loss Statement either as a corporation tax reduction or a credit (depending on how your accountant classifies it).
How does Ardius protect my data?
We use 256-bit, bank-level encryption to protect your data and safely.
How does Ardius make money?
It’s part of our mission to help startups and other companies grow, so we only make money when you do (aka when you actually utilize your R&D tax credit). A good benchmark for utilized credit is when it is officially filed and submitted on your tax return. It’s free to get an estimate of what you could qualify for.
For Non-Gustomers: Once you’ve utilized credits, you’ll be invoiced a calculation fee of $500 per filing year plus the percentage of the utilized credits.
For Gustomers: You’ll be charged a $100 calculation fee plus the percentage of utilized credits.
What if I get audited?
Ardius supplies you with supporting qualitative documentation compliant with IRS regulations for substantiating any R&D tax credits you claim. Ardius also provides support in the rare case of an audit. Our expert CPAs helped the IRS standardize their Audit Technique Guide for R&D tax credits, so you know you’re in good hands.
Related R&D Tax Credit Knowledge
"Ardius took the complexity out of the R&D tax credit process for Workast. I honestly wouldn’t have been able to do this without them. We were able to get over $30K of tax credits back for one year which would have been lost otherwise. The set up and process was super simple and I encourage any company to go through Ardius for their R&D credits."