Are you Documenting your Research Activities Correctly? The Wrong Answer Could Be Costing You Thousands

Don’t neglect important steps to claiming credits you’ve earned

Any company that is making an effort to improve or develop their products, processes, or software can likely benefit from the Research and Development Tax Credit. R&D is a dollar-for-dollar credit that businesses can use to offset against federal and state tax liabilities and to reimburse costs spent performing the qualifying research. In order to qualify, businesses must meet the standards put into place by the IRS.

Don’t Dismiss Documentation

Companies should take detailed notes, and save all paperwork acquired during the research and development process in order to ensure that the maximum amount of value possible is obtained through the credit. A lot of companies miss out on all of the tax credits they could obtain simply because they don’t have proof of all of their expenses. Documentation is also key to passing the 4-Part Test, put into place by the IRS. The test looks at the nature, purpose, process, and uncertainty of the research activities being performed. 

Our step-by-step guide to documenting research activities:

  • Technical Uncertainty: While doing the work, keep track of any documentation that describes the project and technical uncertainty pertaining to whatever it is you’re working on. Documentation of technical uncertainty can include time sheets, design materials, feasibility studies if applicable, project records, and meeting notes.
  • Process of Experimentation: Documenting your process of experimentation is more challenging because of the wide variety of ways experimentation can be done. Documentation includes simulations, design specifications, prototype suggestions, drawings from engineers, descriptions of lessons learned from project failures, and communications regarding testing methods.
  • Technological in Nature: Documentation to support the technological nature of a project can include gathering presentations and meeting notes, designs of system architecture, technical data, and source code to hand into your third-party tax advisors.
  • Qualified Purpose: Compiling documentation to prove the qualified purpose of your businesses’ research and development activities can include copies of internal presentations, project plans, the outline of benefits, meeting notes, and case studies.
  • Remember Third-Party Agreements: It is common for companies to work with outside contractors and vendors when performing their research activities. These outside vendors can provide assistance with many different aspects including research, design, and other services. Businesses must ensure they make copies of any contracts to submit to the IRS.

The Difference is Real

National Tax Group is comprised of in-house tax experts and engineers that specialize in the research and development tax credit. We are committed to each company that we work with and stand by their side from their initial FREE assessment of benefits, to the submission of documentation to the IRS. Contact us today to get started.

Our in house engineers and tax experts are ready to maximize your tax credits.

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