Saving tens of thousands or even millions of dollars by claiming an R&D tax credit sounds appealing, but securing those credits often requires specialized expertise. Often, that means contracting with a tax professional to complete a tax credit study.
So, how much does an R&D tax study actually cost? And, is it worth it in the long run?
To help ensure you're getting the best possible experience and result at the best possible price, here's a breakdown of the elements you may want to consider.
Total Cost Depends on Hours and Expertise
Like most things in life, there's no simple answer to the questions raised above. The total cost for an R&D tax study will vary based on the estimated hours to complete the study and the level of expertise required. The simpler and easier the study, the less costly it will be to your business. Conversely, the deeper and more complex the study, the greater the likelihood to uncover valuable tax credits that often get overlooked.
On average, a simple study takes 40-50 hours to complete and would yield a 200% return on investment (ROI). As studies increase in time, complexity and cost, the credits increase at a faster rate than the cost - So the ROI goes up. For large studies, the ROI can be in the 500% range (for every $1 you invest, you get $6 back in the form of reduced tax liability).
Typically, the fee correlates to a range from 18% of the estimated credit for large complex studies to 30% of the estimated credit for smaller more straight-forward studies.
Costs for First and Subsequent Year(s)
It’s important to note that you’ll likely pay more the first year working with R&D an professional. In fact, first-year fees are about 10% higher than following years due to the need for base period calculations and other start-up costs.
Nominal Fee for Audit Defense
Although Federal and State audit rates are very low for Black Line Group clients (under 2.5% historically) some clients prefer to include audit defense insurance in their agreement. Black Line Group offers audit defense insurance for a modest additional charge (5%-10% of the fee) depending on the size of the engagement.
Is it worth it?
Yes, it's worth it. Having a tax professional secure tens of thousands or even millions of dollars in R&D tax credits is a major benefit to your business. The opportunity could be sizeable considering many eligible credits are so often overlooked. Business owners don’t realize that many activities they perform on a daily basis are considered by the IRS to be “research and development.” At the end of the day, it's all about finding the right partner who can provide the best experience and value for your money. Then, by reinvesting the credit back into your business you can be more competitive, grow faster and make more money.