SBIR Company Must Read

If you are a SBIR company you need to subscribe to Rick Shindell and his news letter. I have not read a more comprehensive report on the ongoing political struggles of the SBIR program. And no one is more engaging in their writing than Mr. Shindell.

If you are a company that takes advantage of the SBIR program or are considering it take a look at Mr. Shindell's website at Zyn Systems. He gives updates on political happenings including issues such as VCs rolls in the SBIR program, adjustment to award amounts, the politicians involved in re-uping the program, changes to personnel in the administrative portion of the program, and anything else you can think of.

I write this because I look forward to his newsletter not only because it is informative but because I strive for my writing to be as engaging as his. Anyone who can mix vampires from Twilight, news media personalities such as Glen Beck and Chris Mathews, and politicians is doing alright. Oh wait. Maybe that isn't much of a stretch.

State R&D Tax Credits

While most of the literature you read on the R&D tax credit focuses on the federal credit, there are tax incentives given by most states for R&D activities. Many of these state credits are not as lucrative as the federal credit but they lack tax nuances such as AMT limitations, NOL carry forwards, ... Therefore, some companies that cannot use a federal credit may still have tax to offset on the state level. ANd these credits can be substantial. My home state of Indiana, for example, has a credit that is more lucrative than the federal credit.

The question becomes, how do you know if the states you conduct R&D in have state R&D tax credits? State tax websites are hard to navigate and some college tax departments have summaries of credits but they do not provide the whole picture (forget knowing if the information is reliable). Well, hopefully you use Hull & Knarr to get this information. We have been collecting information from the states and we are posting it on our website, www.hullandknarr.com, within the next week. You will be able to get information on how the credit is calculated, carry forward and back years, credit expiration dates, and any special instructions for pre-filing applications. With the sourcing links you should be able to get yourself in the right direction for filing a state credit to either further supplement your federal R&D claims or benefit from a credit that is previously been unavailable.

I will keep you posted for when the interactive map with the information goes live. If you have questions now feel free to send them my way. Cheers.

Patrick

Start-up Companies and R&D Tax Credits

Just the other day a client sent me some information regarding a company he started with some other people within the last year. The company is small but revenue is quickly growing in this first year. And while they were are not profitable, yet, he understands the Federal R&D Tax Credit can be carried forward 20 years.

His question was, is the cost benefit there for me to perform a R&D Tax Credit study? After looking at the numbers, my recommendation was no. Start-up companies have too many other issues to deal with without me asking them for a bunch of information that will not benefit them for a year or two. Especially when the tax returns are open for amendment for 3 more years. But, that did not mean they should not take action now.

Since the IRS Tier 1 directive in April 2007, IRS Field agents are looking for more contemporaneous engineering and accounting documentation to substantiate claims. This means they want to see engineering notes, sketches, calculations, testing data, drawings, ... And they want to see some method of tying employee time to the qualified research activities associated with these documents. This means contemporaneous time tracking data. Ahhhhhhhhh!

The ideal method of tracking time for the credit would be to have each person's time tracked by project by task. But this is not realistic for most companies because it does not match their corporate culture. The IRS and the tax courts understand this.

After explaining this to my client's start-up, we have begun the process of incorporating Employee Time Allocation Questionnaires to be completed every month. This meets the IRS requirements and minimizes the intrusion on the company's time. In addition to tracking time, the company now understands the importance of keeping all of their engineering documentation no matter how dirty and sloppy it may be.

As a result of taking a few simple steps, this company now has the tools to substantiate a significant R&D Tax Credit in the future and they are reducing the money and man hour expense of performing the eventual R&D Tax Credit Study within the next year or two.

So this is a call out to all accounting firms, companies, employees, ... If you are associated with a start-up company that is performing R&D take action and call someone that can give you some help to do the same things that my client has done. Anybody that you consult should not charge you any money for this help because it will not take long and they should look at it as trying to grow a relationship with you. And you can use this opportunity to see if the person you are consulting is looking out for you. I hope this helps someone.

First Posting

I am not going to say much in this because I have spent some time setting this up and I am eager to put a post up to see how this displays. I will say that the R&D Tax Credit is a fantastic incentive for companies to perform R&D here in the United States rather than abroad. Many other countries use these incentives to attract business. Ireland is a perfect example of this. Because of their R&D tax incentives Ireland is viewed as a hub for research activities. Establishing this credit is one thing our politicians have got right.

What they are not getting right is the fact that they would rather use the R&D tax credit as a political football to push their own less popular agendas. Basically they are using a piece of the US' future as a bargaining tool. And while this is occurring companies are moving high tech jobs overseas to Ireland, India, and China. Making the credit permanent is a good first step to make sure high tech jobs stay in the states.

I could keep going but I am going to stop. I would rather just ask anyone who reads this material feel free to critique, complain, and just comment on anything I write. Any contributions will only make this blog more informative. Thanks.