How the R&D Tax Credit Has the Best Value of Time

Feb 27, 2020

value of timeThe phrase "It’s worth your time" is often used generically, with "worth" equal to knowledge gained, interesting experiences, or somehow improving your status personally or professionally.

When it comes to the R&D Tax Credit, "worth" is measured in dollars—often in such high amounts that when looked at on a balance sheet it would be difficult to argue against putting in the time. But many businesses don’t understand this benefit, thus they don’t feel the need to invest time in learning about or pursuing the R&D Tax Credit.

But here at Black Line Group, we have several case studies that directly prove, dollar-per-hour, the value of the R&D Tax Credit, including these four from Black Line Group Customers across the United States:

Software Company - Client Satisfaction Grade: 10 out of 10

This company had revenue of roughly $13 million. Black Line Group took on this client in 2018, amending its 2015-2017 taxes and filing 2018 on a timely basis. To investigate R&D Tax Credit opportunities for that three year period and arrange the appropriate documentation, the Owner/CEO, CFO, Project Manager, and additional staff combined to put in 38 hours. The tax savings that resulted from these 38 hours turned out to be more than $950,000—or about $25,000 per hour.

The resulting funds were re-invested into additional development resources to accelerate the roll-out of customer-requested capabilities and technology architecture advancements. These investments will help them grow faster, be more competitive, and increase profitability. For 2019, the company expects to spend 20 hours—with more streamlined and specific reporting—and save more than $15,000 in taxes per hour spent.

Software Company - Client Satisfaction Grade: 10 out of 10

This is another software company with a revenue of $7.9 million. Black Line Group began with this client in 2018, amending its 2016-2017 taxes and again filing 2018 on a timely basis. The CEO, CFO and support staff combined to spend 49 hours researching and arranging documentation for the tax filings. It resulted in a savings of more than $305,000—or over $6,000 per hour.

These savings were reinvested to hire additional business development and software engineering resources, allowing the company to accelerate the rollout of new capabilities and win new business. With its reporting capabilities now fine-tuned, the company expects to spend less than 20 total hours for 2019 while saving over $7,500 in taxes per hour spent.

Technology Company - Client Satisfaction Grade: 10 out of 10

A 10-year client of Black Line Group, this company has a revenue of $29 million and files its taxes annually on a timely basis. With well-established reporting capabilities, total time invested in pursuing the R&D Tax Credit averages 20 hours per year with tax savings equaling just over $6,500 per hour spent.

This company continues to reinvest its tax savings on hiring additional engineering talent and investing in existing staff through on-going education, training, and programs that keep morale—and employee retention—high.

Engineering & Design Company - Client Satisfaction Grade: 10 out of 10

This five-year client of Black Line Group has used improved reporting processes to average 30 hours per year preparing for the R&D Tax Credit, with an hourly tax savings of over $7,600 per year. These savings have been reinvested in the business to fund a small acquisition, purchase additional equipment, and hire additional staff. This proactive strategy has been a significant catalyst in helping the business grow faster, be more competitive, and enhance profitability.

A Simple ROI Equation

Let's consider what a typical company not pursuing the R&D Tax Credit looks like and contrast it with the hourly savings noted above. We'll use $20 million in revenue (115 employees with a revenue per employee of $175,000) and a net profit before tax of 7% ($1.4 million). Assuming an S-Corp with pass-through income to the owners’ personal return and a combined federal and state tax rate of 30%, the company is left with a net after-tax profit of $980,000. 

Assuming a conservative 1,800 hours per year worked per employee, the company is left with $4.73 per hour net after-tax profit per employee hour worked. 

Would you rather have your team working at a net after-tax rate of less than $5 per hour? Or would you rather make $5,000 per hour—and likely more—with an R&D Tax Credit study?

With that in mind, are you really too busy to pursue the R&D Tax Credit?

Find out How Big Your Credit Could Be