Frequently Asked Questions
We know that time is one of the most precious resources startups have, and we don’t want to bore you with all the details of R&D Tax Credit before you commit. We’ve put together a short FAQ for companies interested in learning more about R&D Tax Credit. Please note that these are answers to provide general guidances only, and may not be applicable to your specific situation. Please reach out to us to discuss in more details.
Q: MY STARTUP IS NOT MAKING ANY PROFITS (YET). CAN MY COMPANY BE ELIGIBLE FOR R&D TAX CREDIT BENEFITS?
Good news! Your company may be eligible to claim R&D Tax Credit for performing qualified activities, even when your company is operating at a loss. Many startups qualified for of R&D Tax Credits use the benefit to offset its payroll taxes. Contact us to learn more.
Q: MY STARTUP IS VERY SMALL, AND WE ONLY HAVE A FEW ENGINEERS. CAN MY COMPANY BE ELIGIBLE FOR R&D TAX CREDIT BENEFITS?
Yes. The R&D Tax Credit is not assessed based on the size of the company, but by activities performed by the company that fit the qualifications specified in the IRS R&D Tax Credit code. Contact us to learn more.
Q: CAN R&D TAX CREDIT BE CLAIMED RETROACTIVELY (I.E., CLAIM FOR PAST FISCAL YEARS)?
Yes, as long as the statute of limitation is opened for past years, R&D Tax Credit to offset income tax liability can be assessed and claimed. Filing an amended tax return may required if you paid tax in past years. Please note that the R&D Tax Credit to offset payroll tax and AMT is applicable only to tax years started on or after 1/1/2016.
Q: MY COMPANY HAS ENGINEERS OVERSEAS (OUTSIDE OF US) WHO’VE WORKED ON RESEARCH AND DEVELOPMENT PROJECTS. DO THESE ACTIVITIES QUALIFY FOR R&D TAX CREDIT?
No, only qualified R&D activities performed and paid for in the US is eligible for R&D Tax Credit.
Q: WHEN CAN I START CLAIMING THE BENEFITS? CAN UNUSED CREDIT TO OFFSET PAYROLL TAX CARRY FORWARD?
For payroll tax offset, the R&D Tax Credit can be used in following quarters after the company files a tax return. For example, when a company files its 2016 tax return in Sep 2017, then R&D Tax Credit can be used against payroll tax liability for the 4th quarter of 2017. Any credit that exceeds the payroll liability can be carried over to the next calendar quarter.
Q: CAN NON-TECHNICAL ROLES (E.G., CEO) BE QUALIFIED FOR R&D TAX CREDIT?
Depends on their roles and daily responsibilities. We’ve seen CEOs who heavily participate in technical development qualify for R&D Tax Credit. Contact us to discuss further.
Q: HOW MUCH BENEFITS, ON AVERAGE, CAN I EXPECT FROM R&D TAX CREDIT?
On average, the federal benefit ranges between 4 - 6.5% of research expenses. However, this is a generalized range and the actual benefit amount may vary based on company's qualified activities and circumstances.
Q: I HEARD THERE CAN BE AN IRS AUDIT. ARE THERE BIG RISKS IN CLAIMING R&D TAX CREDIT?
R&D Tax Credit is a relatively high audit risk topic because of its complex qualification criteria and the cash benefit generated from offsetting the company's tab liabilities. Therefore it is highly advised that you work with qualified professionals who have deep expertise in R&D Tax Credit to accurately assess the qualified activities and develop a detailed and compliant-ready documentation. Contact us to discuss how Pinecone41's expert team can help you navigate through this complexity, so you can focus on your products and customers.
Q: I ALREADY HAVE AN ACCOUNTING FIRM / CPA HELPING MY COMPANY WITH COMPLIANCE.
Great to hear! We can work with your CPA who is filing your tax return to ensure the accurate R&D Tax Credit information is reflected in your company's tax return.
Q: I ACTUALLY DON'T HAVE AN ACCOUNTING FIRM / CPA HELPING MY COMPANY. DO YOU GUYS ALSO PROVIDE OTHER TAX SERVICES (E.G., 'RENT-A-CFO', BOOKKEEPING, TAX RETURNS)?
Pinecone41 is specialized in R&D Tax Credit, so we don't offer any products or direct services related to tax or corporate finance. But we're happy to point you to our partners who may provide the best solution for your needs.
Q: My company is larger than a 'typical' startup. should i still work with you guys?
We'd love the opportunity to work with you! Our dedicated team at Pinecone41 has extensive experience in working with Fortune 500 companies as well. Contact us to learn how Pinecone41 can help your company benefit from R&D Tax Credit.
Q: I ACTUALLY WANT TO KNOW THE DETAILS OF THE IRS CODE RELATED TO R&D TAX CREDIT.
You can check out the IRS Code section 41. Here's the link. Enjoy your reading!
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