“I decided to go against my CPA’s recommendation and claim the R&D credit.”
At Black Line Group, we’ve been specializing in the R&D Tax Credit for nearly 20 years, yet, we never heard a business owner say such a thing until recently. That’s a direct quote from Bob Bechtold, owner of HARBEC, Inc., a turnkey injection mold, machining, and additive contract manufacturing company.
This article is different from our typical exploration of a specific aspect of the R&D Tax Credit. You can find dozens of those on our main blog page. Today, I’m sharing some takeaways from years of helping manufacturers and software developers improve their businesses.
The Ongoing Impact of the R&D Tax Credit
“I was so wrong — I thought of the R&D Tax Credit as scientists in a lab doing something that had never been done before. Black Line Group educated us and helped us find activities that qualified for the R&D Tax Credit.”
That’s Kevin, the owner of a Minnesota-based custom manufacturing company specializing in cleanrooms and related equipment for the medical device industry. Prior to being introduced to Black Line Group, Kevin interviewed several potential R&D Tax Credit providers but, given they lacked manufacturing industry knowledge, he was told he didn’t qualify and didn’t completely understand what activities did.
As a quick overview, here’s a brief history of the R&D Tax Credit. In the early 1980s, competition from foreign companies was increasing, most notably from Japan. Honda automobiles, for example, were grabbing market share from American companies. So in 1981, in an attempt to incentivize U.S. companies to reinvest their tax savings back into their business to stay competitive, Congress passed the R&D Tax Credit.
By reinvesting a tax credit wisely — mostly in equipment, staff, processes and technology — a company can be more competitive, grow faster, and make more money. Unfortunately, many companies still don’t know exactly what qualifies as R&D.
Kevin’s CPA, Rich, agrees: “It’s not necessarily research and development as a lot of people think of it. Surprisingly, it’s actually much of what they do each and every day, business as usual, that qualifies.”
The R&D Tax Credit: What to Do (and Not Do)
“Having previously been in public accounting, I had high standards and lofty expectations for Black Line Group. They exceeded my expectations by providing deep tax, R&D, and industry knowledge that delivered outstanding results.”
Chris Piedici, Chief Operations Officer at HARBEC, understands that to get maximum results from an R&D study, a specialist needs to be involved.
What other dos and don’ts have I seen? Here’s a quick list.
• Get outside opinions — As Chris just mentioned, even experienced CPAs are often unfamiliar with the R&D Tax Credit; lean on a specialist for advice and counsel
• Don’t fear an audit — The rate of Black Line Group’s customers being audited (federal and state) is between 1 and 2%. For the unlucky few, there’s nothing to fear when your R&D firm will defend every dollar claimed
• Get your CPA involved — The tagteam of a specialist and a great CPA provides incredible peace of mind (and potentially significant tax savings)
• Make sure your R&D specialist is an industry expert, too — Just knowing the technical tax aspects isn’t enough; to maximize a return, expertise in your industry is a must (see next section below)
• Ask about on-going training — True experts constantly sharpen technical skills to keep up with frequently changing tax laws and industry trends; is your specialist keeping up?
• Scrutinize the process — A proven methodology usually gets the job done right and delivers results; at Black Line Group, we follow these four phases:
-- Assessing feasibility
-- Conducting a study
-- Documenting results
-- Standing behind our work
• Uncover your specialist’s values — Beyond the numbers and a solid methodology, working with a specialist that truly has your back leads to a reassuring, rewarding experience
Those two final points cannot be overstated. Here’s how Chris Piedici feels about it: “No truer words were ever spoken than [Black Line Group’s] early on: ‘BLG will never claim a dime on your behalf we cannot defend.’ We felt very comfortable and confident with the process, and it went very smoothly.”
Industry Knowledge is Key
“John Madsen (BLG Vice President, Manufacturing Practice Leader) could see that we were leaving a lot more than money on the table. We had a progressive die running, and John made a suggestion that increased press speed. His idea was able to be leveraged multiple times, and that improvement wasn’t even part of the R&D credit.”
Javier Castro, owner of Bazz Houston International (BHI), a metal forming/fabrication company, quickly became comfortable with the idea of working with Black Line Group because of the industry knowledge we brought to the project.
Black Line Group may not be the best fit for a pharmaceutical company, for instance, but when it comes to a contract manufacturer or software developer, we're very confident in our abilities.
Kevin summarizes it this way: “Black Line Group’s manufacturing expertise was critical. Without knowing manufacturing, it’s hard to discern the subtitles of what is R&D … They understand manufacturing.”
Like Many Things, It Comes Down to Numbers
“For every hour we invested in the study, we saved $6,193 in taxes. That’s quite a significant ROI.”
It was clear to Javier that conducting an R&D Tax Credit study was a worthwhile investment. However, saving tens of thousands — or even millions — of dollars by claiming an R&D Tax Credit doesn’t happen without using professionals to identify Qualified Research Expenses (QREs). If you have questions about that process, read this article.
Speaking of numbers, compare two R&D Tax Credit specialty firms. One charges its customers a percentage of whatever is claimed. The other offers a firm fixed bid price, regardless of what’s claimed. Won’t that first specialist be tempted to push the envelope and maybe go over the line in terms of what’s acceptable to be claimed? Of course; their bottom line is on the line!
At Black Line Group, we always put our customer's best interest ahead of ours. That’s reflected in our firm fixed bid price; we only charge based on the estimated hours to complete your study.
Want to read and hear more about real customer experiences? Click on these links:
Read our HARBEC case study: Trust in R&D Tax Credit specialists earns 1,216% ROI
Read our BHI case study: Knowledge of Both Industry and R&D Tax Credits Results in $6K+ Savings Per Hour Invested
Watch an interview with Kevin: R&D Tax Credit Yields Huge Win for Kevin's Custom Manufacturing Company
One final takeaway. Not every R&D Tax Credit specialty firm performs a comprehensive conclusion call after each R&D study is complete. At Black Line Group, our conclusion calls cover 10 brief questions that dig into various aspects of the partnership and its results. That’s the only way to improve not only the customer’s experience but also the bottom-line results.
We’d like to pass along a bit more advice. Our 9-point checklist provides insights to help you protect your business, increase profitability, and keep growing in 2021. Just click the link below!
