Every business owner can agree that time is money. The more time a certain task or project takes, the more money you've invested in it. That's why businesses continue streamlining processes to become more efficient and cost-effective than ever before. This might also explain why some businesses don't seriously consider the R&D Tax Credit. True, it does take some time, but how much could you save and what’s the ROI?
If you haven’t yet, it's definitely worth spending a couple hours to determine if you qualify for this dollar-for-dollar tax credit. Once you do, you will then have a good idea of your potential tax savings, along with the time and cost to realize it.
Here's what you need to know about the R&D Tax Credit Study and what it means in terms of your time.
How Much Time Do I Have To Put Into an R&D Tax Credit Study?
That first step, to assess feasibility? In most cases, it takes one to two hours per location. Perhaps even as little as one hour each, on average, if there are multiple locations with similar activity. That time commitment on your part would allow us to estimate your tax benefit, the cost for us to do the work and determine how much time you would need to spend on the remaining two phases. Overall, our collaborative method has three phases that include:
- Assessing Feasibility
- Conducting Your Study
- Documenting the Results
The time to assess feasibility was estimated above. In this phase we take this time to ask questions, get to know your business, and size up your company’s current situation. From there, Black Line Group outlines the cost, estimates tax savings, and determines the total effort required by your company. Next, you’ll receive everything you need to know to answer the question: Is this worth our time?
With our no-cost analysis at your fingertips, you’ll be able to review findings and make a go or no-go decision based on the investment required by your company (time and money), the estimated savings, and overall return on investment. For example, after going through a two-hour process, you might learn that your company could receive $140,000 with the R&D Tax Credit. From there, you can determine if it is worth your time and effort to pursue the credit.
Part of this initial no-cost analysis includes looking into qualified activities that can be found in the nine steps of the standard manufacturing process. Those steps include:
- Sales Time
- Design Meetings
- Flat Blank Layouts
- Tool Making
- Engineering Process
- Proof of Concept
- Trial Production Run
- Quality Approval
To qualify for the R&D Tax Credit, an activity must always pass The Four-Part Test.
The Four-Part Test
Once you’ve identified potential qualifying activities, run it through the Four-Part Test to verify. The four parts of the test are:
- Permitted Purpose. This is the activity intended to make or improve either a product or process that results in improved function, performance, reliability, quality or cost efficiency.
- Technical Uncertainty. This is the activity intended to eliminate technical uncertainty when developing or improving a product or process related to methodology, design, techniques, formulas or inventions.
- Process of Experimentation. This is the activity that includes a process of experimentation to eliminate or resolve technical uncertainty. During the process, various alternatives and approaches are evaluated by modeling, simulation, trial and error, prototyping and other methods.
- Technological in Nature. The process of experimentation must rely on the hard sciences (engineering, physics, biology, chemistry, computer science).
Many businesses may find that an R&D Tax Credit study is indeed worth the time and effort and could result in applying for R&D Tax Credit year after year. Lastly, be sure you consult with a reputable R&D Tax Credit expert to ensure the process is completed in a thorough and accurate manner.