Is Your Manufacturing Business Getting the (R&D) Credit it Deserves? FAQs About R&D Tax Credits

Did you know that your manufacturing business could be missing out on $1.25 million in federal Research & Development Credits? Learn answers to your most pressing questions surrounding the credit, what projects and expenses count for it, and how 3Sixty Advisors can help with the next steps. 

Did you know that your manufacturing business could be missing out on $1.25 million in federal Research & Development Credits? Learn answers to your most pressing questions surrounding the credit, what projects and expenses count for it, and how 3Sixty Advisors can help with the next steps. 

What Are Research & Development Credits?

Research and Development credits, or Research Credits, are among the most prominent annual tax benefits available to U.S. businesses. The credit was created in 1981 to encourage companies to preserve high-paying jobs in the United States. However, to qualify, a company had to design or produce a novel product or technique, which meant that only a few cutting-edge businesses were eligible. 

New rules have been implemented, and the term “research and development” now appears to be a general phrase for what the credit genuinely rewards: progress. This means that businesses within many industries can now qualify for these credits. 

If your company spends money on improving or developing processes that apply to a field of science, you may be eligible. This can be as simple as dedicating money to refining your company’s manufacturing process, hiring someone to increase efficiency within your company, etc.

What is Qualified Research?

As the IRS puts it, qualified research “must be undertaken for discovering information that is technological in nature, and its application must be intended for use in developing a new or improved business component of the taxpayer. In addition, substantially all of the activities of the research must be elements of a process of experimentation relating to a new or improved function, performance, reliability, or quality.” 

Put simply, qualified research has to be specific, improve your business, involve an unknown element until tested, and rely on science or engineering principles. 

What Are Qualified Expenses?

Qualified expenses include wages paid to individuals involved with research activities, including in-house and contractual. It also includes materials, supplies, and tools used for each activity.

Some qualifying actions include the development or improvement of:

  • Company products (physical or otherwise)
  • Company processes
  • Software design
  • Inventions or patentable processes
  • Techniques

Not sure if your activity qualifies for a Research Credit? Get connected with a 3Sixty Advisors professional. We can work with you to check eligibility and start the process of filing for your credits. 

My Business is New; Can I Still Qualify?

Yes! New businesses can offset payroll taxes for up to five years with Research Credits. With a maximum of $250,000 allowed per year and a five-year max, this could mean up to $1.25 million in total credits.  

For those who’ve been in business longer than five years, they can claim up to $250,000 per year, up to five years, against payroll taxes. Eligible companies need to have less than $5 million in gross receipts and less than five years of gross receipts, including the current tax year.  

Two Engineers Using CAD Programming Software On Laptop

 

To Claim the Credit, What Would I Need to Keep Track of?

To apply for the credit, you’ll need to have records for the following: 

1) Identify each business component that the claim credit relates to. 

If your business has several components that could count for the Research Credit, you’ll want to identify each separate part. 

For instance, a manufacturer has identified through different qualifying research activities: Activity 1, Activity 2, and Activity 3. Therefore, each of those three activities must be kept separate. 

2) List each research activity performed.

For each business component, you’ll want to take a closer look at each activity. So, first, list out each research activity, including in-house and contractual work. 

For instance, with the example above, this manufacturer will list Activity 1: Project 1 and Project 2. Activity 2: Project 1. Activity 3: Project 1, Project 2, and Project 3. 

Look through the details of each activity and separate qualified and non-qualified expenses. For instance, travel expenses, meals, and entertainment would not be considered eligible and should not be included. 

For contractual work, if the contractor is working on multiple projects, ask for separate invoices for each project so you can keep records as accurate as possible for claiming a Research Credit.

3) Record the names of all individuals who’ve performed each research activity.

4) Categorize quantitative information of what each employee sought to discover

5) Calculate total qualified employee wage expenses, supply expenses, and contract research expenses for the claim year

While organizing research activities, you’ll also want to include each individuals’ name, whether they’re in-house or contractual. 

You may want to capture this data in a simple spreadsheet. For example, you could include individual name, activity name, quantitative discovery information, total wages, total supply expenses, and total contract research expenses for each column header. Along with a spreadsheet, you’ll also want to hold onto digital and hardcopy files and label accordingly. 

The above memorandum components have been coined the “five items of information.” First mentioned in a recent IRS Press Release, they’re now required with timely filed Research Credit claims for a submitted request. 

Because of these new requirements, the IRS has introduced a transition period that runs through January 10, 2023, where taxpayers have 45 days to perfect a Research Credit claim before the IRS’ final determination.

How 3Sixty Advisors Can Help Businesses Determine Qualifying Expenses and Claim Eligible Tax Credits

At 3Sixty Advisors, we’ve helped thousands of customers file for Research Credits. We know how to get things rolling quickly without adding more to your business tasks. Uncover answers to your most pressing Research & Development Tax Credits questions on our services page, R&D Tax Credits.

Take the Next Step to Save

Ready to get started? Contact a 3Sixty Advisorsn professional today to take the next step. Our done-for-you model means we submit the application with you to the bank.

Business Bookkeeping Best Practices for Your Tax Documents

Whether you’re just starting to launch a small business or have been at it for years, bookkeeping is an essential component. But for many, numbers and finances are daunting, and relying solely on software could leave gaps where you’ll want to know what’s entirely there. This past year, questions about taxes have been on the rise. There’s been a 140% increase in Google searches for business tax preparation and a 50% increase in small business bookkeeping. As a result, businesses are looking for answers to bookkeeping questions. 

 

So we’re delving into the top questions about bookkeeping for getting your tax documents in order this year. 

 

Are Bookkeeping and Accounting the Same Thing?

Not exactly, but they do work with one another. Bookkeeping records and tracks business financials for all transactions, operations, and other events relating to the business. Accounting is the measurement, processing, and communications about bookkeeping. Think of it this way – Bookkeeping looks back on the business specifics and accounting looks forward to projecting trends and other financials from bookkeeping records. 

 

Why is Bookkeeping Important for a Small Business?

It’s well-known that bookkeeping is essential if your business gets audited. But keeping up with your books can also help with analyzing and planning for the months and years ahead, streamlining and minimizing accounting costs, and saving countless hours during tax season. You’ll be able to get a snapshot of how your business is performing overall but also get to deep dive into specific analytics of sales, costs, and much more.

 

What Are the Most Common Business Records?

Some business records will be needed often and should be kept on hand for easy access. Whether it’s journals, ledgers, or digital recordkeeping, you’ll want to find an organization method that works best for your business. Generally, it’s best to track transactions daily for easier long-term recordkeeping. 

  • Employee names, addresses, and contact information
  • Employee timesheets
  • Employee pay stubs
  • All tax forms submitted to the IRS
  • Bank statements
  • Insurance documents
  • Contracts, including loans and mortgages
  • Purchase receipts
  • Customer invoices
  • Tax returns
  • Financial statements
  • Depreciation schedules
  • Business registration documents
  • Employer Identification Number
  • Board of Directors meeting minutes
  • Legal files
  • Emails

Whether it’s journals, ledgers, or digital recordkeeping, you’ll want to find an organization method that works best for your business.

 

How Long Should I Keep Records?

The length of time for keeping records varies but the general rule of thumb is to keep records for a minimum of seven years for IRS reporting. Of course, your insurance or creditors may require you to keep records for longer. You can see a full breakdown of the recordkeeping timelines in this IRS article. 

 

How Do I Pull Payroll?

Depending on how you’re keeping bookkeeping records, the method may look a bit different. But generally, you’ll want to go to your reports menu, find the payroll section, and go to payroll summary. While there, you’ll want to narrow your date range and employee search. Lastly, you’ll want to run the report.

 

How Can I Improve My Tax Position to Reduce My Payout?

The quickest and most reliable way to improve your tax position is to work with top-quality compliance and specialized accountancy services, like 3Sixty Advisors. 

 

Contact us to learn how we help small businesses like yours with Employee Retention Credits, Research & Development tax credits, and Work Opportunity tax credits.

See firsthand how the Providertech portal works. View a live demo during the webinar, get your questions answered, and test it out for yourself. Get your unique code to demo the portal following the webinar.

 

Why Form 8821 Matters Now More Than Ever

Tax Compliance

This year’s tax season is well underway and the IRS is in full swing of processing returns. In fact, this year, they’re working through 8.1 million unprocessed returns, and the tax season is only half over. For businesses filing with an authorized accounting service, including 3Sixty Advisors, one of the easiest ways to streamline returns is by filling out tax information authorization Form 8821. 

What Exactly is Form 8821?

In short, Form 8821 is a one-page tax document that is necessary for accounting services, including 3Sixty Advisors, to be able to file your business tax returns and track your payment status. 

According to the IRS, “Form 8821 authorizes any individual, corporation, firm, organization, or partnership you designate to inspect and/or receive your confidential information verbally or in writing for the type of tax and the years or periods you list on Form 8821.” 

Of note: Form 8821 does not grant power of attorney rights including speaking to the IRS on your behalf, executing waivers or closing agreements, or any other representative matters. For those additional allowances, you’ll want to talk with the 3Sixty Advisors team and consider filing Form 2848. 

Why File Form 8821?

Form 8821 helps 3Sixty Advisors in a multitude of ways including:

  • Receiving your transcripts, account information, and payments made to an account. As a tax credit partner, this allows us to get a full picture of your tax information. We’ll be able to review your transcripts, account information, payments made to an account and work with you for the best solutions and next steps.
  • Receiving copies of IRS notices before they’re sent to you. This lets us get a jumpstart for resolving any issues one or more days before you receive those same IRS notices in the mail.
  • Save time with team collaboration. This lets our team work together without requiring individual allowances. You’ll be able to save time by filling out one form and we’ll be ready to collaborate to deliver optimal results with minimal disruption for you or your business.
  • Peace of mind. Unlike Power of Attorney Form 2848, Tax Information Authorization Form 8821 automatically expires. This allows 3Sixty Advisors to work with you on your taxes while not requiring specific revoking actions.

Form 8821 gives 3Sixty Advisors the ability to complete your IRS tax paperwork and track your payment status. 

How Do I Get Started?

Form 8821 and instructions can be found on the IRS website, but the 3Sixty Advisors team goes a step further. We take the guesswork out of deciphering tax form instructions and ready forms for clients. Operations Manager Brittany Perez says, “We actually fill out the whole form, their EIN, address, business name, etc. All our clients need to do is print, sign, and mail it back into our firm.”

Once 3Sixty Advisors receives the completed form, we file it directly with the IRS and get to work delivering human resources and technology-enabled services for our clients.

How 3Sixty Advisors Can Help

At 3Sixty Advisors, we’ve helped thousands of customers file. We know how to get things rolling quickly without adding more to your business tasks. Uncover answers to your most pressing questions on our homepage, 3Sixty Advisors.

Take the Next Step

Ready to get started? Contact a 3Sixty Advisors professional today to take the next step. Our done-for-you model means we submit the application with you to the bank.