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July 11, 2022
1 min read
With backing from the National Association of Manufacturers, GOP Representative Jackie Walorski of Indiana put forward an amendment to the tax code that could mean serious increases in research and development tax credits for businesses.
Over the years, the R&D Tax Credit has gone through many changes. In 2015, the credit became permanent thanks to the PATH Act. The act also expanded R&D tax credit access to small and medium businesses, as well as startups.
Currently, Rep. Walorski is proposing H.R. 8253, better known as the FIRST Act or the Fostering Innovation and Research to Strengthen Tomorrow Act. This amendment would increase the amount of R&D spending that businesses can claim.
Double the credit, double the fun… that should be Rep. Walorski’s slogan.
“Doubling the R&D tax credit will encourage American companies — especially small businesses and startups — to invest in innovation that will unleash economic growth and prosperity,” Walorski said in response to the proposed changes. He further affirmed, “the FIRST Act will take a strategic step toward ensuring that America will lead the world in scientific discoveries, technological breakthroughs, and cutting-edge manufacturing for the 21st century.”
The proposed amendment has strong backing from the National Association of Manufacturers, as acknowledged by their senior director of tax policy, David Eiselberg, “the manufacturing industry is the backbone of American research and development, and this bill would support jobs, boost innovation and help ensure America’s future competitiveness.”
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As businesses grow, understanding how engineering teams allocate their time becomes critical for efficiency and financial transparency. For decades, that meant adding processes like time sheets, labels, and tags. Now, as things have gotten more complicated, businesses have added a whole new process in the form of enterprise project management systems. The traditional rationale goes: by inputting their work, there will be more transparency for managers and simplified tax compliance for controllers and Heads of Tax.
But that ignores a fundamental problem: these additional layers aren't connected to the actual core work engineers do. They depend on people following a process consistently — which never quite works. The result is incomplete and inaccurate data across systems, and frustration in engineering and finance.
Engineers didn’t sign up to bookkeep. The burden of accurately tagging and tracking their work is a headache that’s out of sync with the rest of their workflow.
So, we created a better solution with Neo.Tax: an automated solution that calculates your engineering team’s time — with accuracy and consistency — from existing systems. Remove the burden from engineering and remove human error from your datasets.
At Neo.Tax, we talk to scores of controllers and Heads of Tax every month. One thing is clear: the old way of filing for R&D Tax Credits has become a burdensome pain. You’d think that so many businesses moving their project management and payroll online, via software like Jira, Rippling, and Workday would simplify the filing process. But, in some ways, it’s made it harder.
The payroll and project management output is a rich dataset, but it’s also, well, voluminous. If that data is not inputted perfectly—and let’s be honest, it never is—that means it’s up to a controller or Head of Tax to sift through the mess to create the filing. Engineers need to be trained (and retrained) on the correct project tagging process, and then cajoled to sort out any inputting errors. It’s a waste of time for your filer and your engineering teams.
Which is why Neo.Tax created our AI system.
No one starts a company because they’re excited about accounting and taxes. Well, no one except the Neo.Tax founders :)
But for those other 99% of founders, here’s a cheat sheet and guide to ASC 350-40, an accounting guideline that pertains to Internal-Use Software Development Costs. Maybe you’ve never heard of ASC 350-40, but you should get to know the rule if you ever plan to go public.
