If your company is solving problems, improving products, developing software, refining processes, testing new ideas, or simply figuring out better ways to do what you already do, there is an important question every CEO should be asking:
Are we receiving the tax benefits potentially associated with that innovation?
At GainFound Partners, the Research & Development Tax Credit is one of the first areas we want to examine when evaluating an established business. Not because every company will qualify, and certainly not because every business will uncover a massive credit, but because when an opportunity does exist, the numbers can become meaningful.
More importantly, this isn’t necessarily about finding something new for your company to buy.
It’s about discovering value your company may have already created.
R&D Is Probably Not What You Think It Is
Mention “research and development” to many CEOs and they immediately picture scientists in laboratories, pharmaceutical companies, aerospace engineers, or Silicon Valley technology firms.
That perception can cause otherwise innovative companies to overlook an important federal tax incentive.
The federal Research Credit, commonly called the R&D Tax Credit, can potentially apply to qualified activities involving the development or improvement of products, processes, software, formulas, techniques, performance, reliability, or quality.
The IRS generally evaluates qualified research using requirements involving a permitted purpose, technological uncertainty, technological principles, and a process of experimentation. IRS Instructions for Form 6765
The important word for a business owner is improvement.
Your company doesn’t necessarily need to be inventing something the world has never seen.
Your people may simply be trying to make something work better.
And that changes the conversation considerably.
We Don’t Ask, “Do You Have an R&D Department?”
We ask a much better question:
What problems are your people being paid to solve?
Think about what happened inside your company during the last several years.
Perhaps your team redesigned a product because the original version wasn’t performing properly. Maybe employees experimented with different materials, configurations, formulations, dimensions, components, or production methods.
Your developers may have built proprietary software, created integrations, automated complicated processes, improved system performance, or attempted several technical approaches before finding one that worked.
Your manufacturing team may have spent months figuring out how to produce something faster, more consistently, with less waste, or at a higher quality.
Your engineers may have created prototypes, tested alternatives, modified designs, or solved technical problems unique to your operation.
From your perspective, that’s simply what you pay talented people to do.
From another perspective, some of those activities may deserve a much closer look.
Sometimes the Failure Is Part of the Value
Business owners naturally focus on successful outcomes.
You remember the final product that worked. You remember the process improvement that saved money. You remember the software deployment that finally went live.
But innovation rarely happens in a straight line.
Your team tries something. It doesn’t work.
They modify it.
That solves one problem but creates another.
They test another approach.
That fails.
Eventually, after enough experimentation, they find the solution.
Ironically, those failed attempts can help demonstrate something important: there was genuine uncertainty that had to be resolved through experimentation.
The IRS specifically includes a process of experimentation within its framework for determining qualified research.
In other words, the expensive journey your company had to take to reach the successful result shouldn’t automatically be dismissed as simply another cost of doing business.
It may be worth investigating.
This Is Where the Numbers Become Interesting
Once potentially qualifying activities are identified, the next question becomes financial:
What did your company spend performing that work?
Certain wages, supplies, and contract research expenses may potentially factor into qualified research expenses when the applicable requirements are satisfied.
For a company with 20, 50, 100, or several hundred employees, that deserves attention.
Imagine that several employees spend meaningful portions of their working time developing products, improving processes, writing or improving software, testing alternatives, solving technical problems, or performing other potentially qualifying activities.
Those payroll costs accumulate.
So can other qualifying expenditures.
And when legitimate qualifying expenses accumulate across multiple people, departments, projects, and potentially applicable tax years, what initially sounded like an obscure tax provision can become a serious executive-level conversation.
That’s why this is one of the places GainFound Partners likes to look early.
There can be significant value sitting inside work the company has already paid for.
What About a Young Company That Isn’t Profitable Yet?
This is another reason CEOs shouldn’t dismiss the conversation too quickly.
Certain qualified small businesses may elect to apply part of the research credit against payroll taxes rather than using it exclusively against income-tax liability.
Under current IRS guidance, an eligible qualified small business can elect up to $500,000 of research credit against payroll taxes, subject to the applicable qualifications, limitations, filing requirements, and rules. IRS Research Credit Against Payroll Tax for Small Businesses
That can make the conversation relevant even for a rapidly growing company investing heavily in development while not yet producing substantial taxable profits.
It is not automatic, however. Eligibility and proper filing matter, which is why this needs to be evaluated by appropriately qualified tax professionals.
Finding a Big Number Isn’t the Goal
This point is important.
At GainFound Partners, we’re interested in finding opportunities, but we’re equally interested in making sure those opportunities are legitimate.
There is an enormous difference between someone producing an impressive estimated tax-credit number during a sales presentation and a properly evaluated, calculated, documented, and supportable tax position.
The R&D Tax Credit requires substantiation.
The IRS uses Form 6765 to calculate and claim the Credit for Increasing Research Activities, and reporting requirements have continued to evolve.
That means the real work involves understanding what your employees actually did, determining which activities may qualify, connecting appropriate expenditures to those activities, performing the calculation correctly, and maintaining appropriate supporting documentation.
We want to uncover money. We don’t want to manufacture it.
That’s an important distinction.
Then We Ask the Question That Really Matters
Suppose a proper analysis determines that your company has a legitimate R&D tax-credit opportunity.
What would you do with the additional capital?
Maybe you hire another employee.
Maybe you upgrade equipment that you’ve been postponing for two years.
Maybe you improve employee health benefits or retirement strategies.
Maybe you invest in artificial intelligence and automation.
Maybe you expand your sales operation, strengthen marketing, enter another market, reduce debt, increase reserves, or fund the development of your next product.
Or perhaps you simply improve cash flow and keep more capital inside the organization.
That’s ultimately a decision for you and your leadership team.
Our interest is making sure you have the opportunity to make that decision in the first place.
Because capital that unnecessarily leaves a business can’t be reinvested into its employees, infrastructure, technology, customers, or future.
This Is the GainFound Partners Philosophy
Business owners are constantly approached by people asking them to spend more money.
Buy another product. Add another subscription. Hire another vendor. Replace another system. Sign another contract.
GainFound Partners begins with a different question:
Before we ask you to spend another dollar, what can we find?
Could there be tax credits your organization hasn’t investigated?
Could employee-benefit strategies be improved?
Could health-benefit costs be approached differently?
Could technology eliminate unnecessary manual work?
Could AI create efficiencies?
Could your reputation and lead-generation systems produce more value?
Could our Channel Partner network connect you with people or resources capable of solving a problem you’ve been carrying for years?
That is the thinking behind GainFound.
We want to look throughout the organization for opportunities to find gains.
And the R&D Tax Credit is an excellent example of that philosophy.
Your company may have already paid the employees.
You may have already funded the development.
You may have already built the prototypes.
You may have already written the software.
You may have already tested the alternatives.
You may have already experienced the failures.
And your people may have already solved the problems.
The only thing nobody did was stop and ask whether any of that activity created a legitimate tax opportunity.
Give Us 30 Days to Start Looking
That’s the GainFound Partners 30-Day Challenge.
If your organization has 20 or more employees, we want an opportunity to look beneath the surface of your business and identify areas worth investigating.
The R&D Tax Credit is often one of our first conversations because it gets directly to the heart of what GainFound Partners is designed to do:
Find potential value that’s already hiding inside your business.
Maybe we discover a substantial opportunity.
Maybe we discover a smaller one.
Maybe a qualified review determines there isn’t an R&D opportunity at all.
That’s okay.
Because we’re not interested in forcing your company into a solution.
We’re interested in finding the right ones.
If your employees spend their time creating, developing, testing, engineering, programming, improving, experimenting, or solving technical problems, let’s have the conversation.
You’ve already done the hard part.
You built the business.
Now let’s find out what the business may have been leaving on the table.
Take the GainFound Partners 30-Day Challenge.
Let’s find your gains.
GainFound Partners does not provide legal or tax advice. Eligibility for tax credits depends upon the facts and circumstances of each business. Potential credits, tax treatment, documentation requirements, and filing decisions should be reviewed with appropriately qualified tax professionals.