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THE APRIL 18TH TAX DEADLINE IS APPROACHING FAST
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THE APRIL 18TH TAX DEADLINE IS APPROACHING FAST
DON'T FORGET TO CLAIM YOUR R&D TAX CREDIT! BOOK A CALL TODAY
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June 17, 2022
1 min read
If you’re wondering when you’re going to receive your R&D Tax Credit, the short answer is: it’s all down to when you, or your accountant, filed your income taxes and Form 6765.
As we all know, dealing with the IRS can be… unpredictable–so we’ve created a quick reference on:
When preparing your R&D Tax Credit, you can prepare your own, have your accountant manually prepare it for you, or use a third-party service. Regardless of the preparation method, there are key steps you need to follow to file and receive your credit.
After you have prepared your R&D Tax Credit, you or your accountant need to file Form 6765, along with your Federal Income Tax Return.
The R&D credit is based on the qualified research expenses incurred during the tax year and is on the business income tax return for the company claiming the credit.
There is a section at the bottom of Form 6765 to allow qualified small businesses to apply all the credit to payroll taxes instead.
Note: Don’t want to apply all of your credit? You can also apply other amounts up to a maximum of $250,000.
If you make the election to take the payroll credit, then you must file Form 8974 with your quarterly tax return. Hand this form off to your payroll provider, and they will incorporate the credit into your payroll tax return.
The credit is first applied against employer payroll taxes quarterly, beginning in the first calendar quarter after you file your federal income tax return.
However, the exact timing and method of tax savings depend on your payroll provider and R&D credit preparer--if you’re working with a credit preparer.
Note: Some R&D Credit preparation companies offer a loan advance to get your credit amount right away instead of waiting. There are some cons to opting for this type of service, like:
Because Form 6765 needs to be filed with your income tax return, timing is everything when getting your R&D tax credit as soon as possible. Trust us, we understand wanting to reduce your burn–so keep in mind these dates:
End of Quarter Deadlines:
Extension Filing Deadline:
Payroll Providers Turnaround:
*Gusto is currently the only provider that offers real-time refunds for an additional cost.
IRS Turnaround:
This is a hard question to answer and, unfortunately, the most honest answer is:
As we said, it’s a hard question to answer.
This is why all the above dates and turnaround times are so important.
It’s all a domino effect.
By meeting the income tax return filing deadline–be that on April 15 or by the end of each subsequent quarter–you can then have your payroll tax provider process your payroll tax credits, which helps get everything over to the IRS quick, fast, and in a hurry.
The best way to calculate when you'll see your tax credit is:
The date that you land on could serve as a good approximation for when you can expect your credit.
This depends on your payroll provider.
Note: check with your payroll provider to confirm how the R&D tax credit will be refunded.
However, we can give you a general overview of the process:
Note: even after you submit the credit information to your payroll provider, it's important to remember that most providers will continue to withhold and make deposits of your regular employer's payroll taxes each pay period.
If you use a PEO, a professional employer organization–where your employees are “employees of record” for the payroll company–the process is similar, except that the PEO will receive and reconcile the credit across all their client companies first and then they will then credit your account.
Note: what's the fastest way to enjoy your tax savings? Do not submit the employer payroll until you know the credit amount. That way, you don’t have to wait for a refund check from the IRS.
Currently, Gusto is the only payroll provider that allows this option. However, Gusto charges you $100 a month extra for this service, coined the “Real-Time Refund.”
Last, but certainly not least, payroll!
Here’s a guide to filing payroll tax credits with the following payroll providers. Just click a menu item to view the steps for your provider:
Want to learn more about all things R&D? Check out some of our related articles and don't forget to sign up for our newsletter to keep up with Neo.Tax!
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In July, the government moved for a summary judgment ruling that Kyocera AVX, the multinational ceramics and electronics manufacturer, is not entitled to the $1.3 million amended Section 41 R&D Credit they recently claimed. The company had hired PricewaterhouseCoopers (PwC) to make the filing, and the accounting firm did interviews with subject matter experts to compute the eligible amount of Section 41 credits they could claim for the tax years 2017-2020. PwC found $1.3 million worth of unclaimed credits, which they filed in the amended Section 41 study. But, ultimately, the IRS claims that the R&D Study and documentation provided were not sufficient to support the claim, and when the IRS requested additional documentation to support the claim neither Kyocera nor PwC could produce it.
Two of the government’s objections in its case against Kyocera are especially relevant to any company that files for an R&D tax credit: 1) “The PwC study exclusively relied on interviews to determine employees' time spent on projects; it did not use documentation” and 2) “Kyocera does not have a centralized system for tracking employee time, and generally does not track employee time on projects.”
The IRS has been emphasizing the necessity of contemporaneous documentation for decades, as far back as Eustace v. Commissioner in 2002. But this recent motion for summary judgment against Kyocera could mark a potential shift towards a stricter application of their long-standing policy.
The direction seems clear—reliance on after-the-fact interviews without supporting documents is increasingly untenable.
Kyocera's reliance on a PwC-conducted study, which was ultimately deemed insufficient by the IRS due to lack of proper documentation and over-reliance on estimates, highlights a systemic risk in the current practices of R&D credit calculation.
The IRS mandates strict substantiation requirements for claiming R&D tax credits under Section 41 of the IRC. Specifically, Treasury Regulation § 1.41-4(d) emphasizes the necessity for contemporaneous documentation to support the expenditures claimed. This documentation must detail the nature of the qualifying activities and their direct connection to the claimed credits—a challenging task for businesses relying on traditional methods, particularly for those that do not have employee time tracking systems in use.
In the case of Kyocera, the IRS disputed the R&D tax credit claims due to inadequate substantiation of the research activities claimed under Section 41. The agency focused on the lack of contemporaneous documentation, relying instead on retrospective estimates from interviews conducted by PwC long after the fact. This method was seen as inadequate in the eyes of the court; they demanded a more rigorous substantiation to prove that the activities qualified as R&D.
This is where Neo.Tax separates itself in the R&D tax space. Unlike traditional methods that often rely on after-the-fact recollections and manual calculations, Neo.Tax leverages advanced AI to analyze real-time data from integrated systems such as Jira and GitHub. This not only ensures greater accuracy but also provides a contemporaneous, auditable trail of documentation that meets IRS requirements. Better yet, our AI not only reviews these systems to identify the research activities, but also uses the meta data to help allocate the time. And because the meta-data is recorded "at the same time" as the tickets in Jira, it is — by definition — "contemporaneous documentation."
By accessing data from systems such as Jira and GitHub at the time of tax preparation, Neo.Tax’s platform can automatically extract, classify, and substantiate qualifying R&D activities. This method aligns with the IRS's emphasis on contemporaneous records. The agency prefers these types of records because they are more reliable than documentation created far after when the activity occurs — certainly, an engineer creating a timesheet of his work at the end of the month is likely more accurate than asking them to recollect their work on a project completed a year, or multiple years, in the past.
Unlike traditional R&D studies conducted by large accounting firms, which rely on retrospective interviews and questionnaires, Neo.Tax’s solution utilizes real-time data to support R&D credit claims. This direct link to project-specific activities minimizes reliance on employee recollection and significantly enhances the accuracy and defensibility of claims during IRS audits.
We often speak of the way our AI solution saves time for controllers, heads of tax, and engineers by eliminating the need for time-consuming retrospective interviews. But the Kyocera case highlights another, far more stark and costly risk of relying on memory and estimations for look-back claims. The IRS is making it clear that they’re emphasizing the need for contemporaneous data. Companies who rely on the R&D credit should take note.
As businesses increasingly adopt project-management tools that capture their developmental activities in real-time, a new approach to R&D tax credit documentation is possible. Neo.Tax’s AI-powered platform provides a reliable, efficient, and IRS-compliant method to claim R&D tax credits. By leveraging data directly from the systems so-often used by innovative companies, Neo.Tax ensures that your spending on R&D is rigorously documented in accordance with current tax laws.
We can get you the money you’re owed. Just as importantly, we can deliver the data-rich study that the IRS prefers and expects.
Given the importance of extending runway in today’s high-interest-rate reality, it’s shocking to learn that just 3 out of every ten companies that qualify for the R&D Tax Credit claim the money they’re owed. In 2011, “the largest 0.13 percent of all firms in the US claimed 14 percent of the credits,” according to research by the Mercatus Center at George Mason University. So, if you’re on the fence about claiming the credit, remember that the big guys are claiming it; shouldn’t you, too?
But this isn’t an article designed to make you feel foolish. FOMO Marketing is not our thing. We at Neo.Tax have built our AI-powered R&D Credit filing tool to make sure every innovative American business can claim the money they’re owed. So, get in touch with our team of experts to walk you through the process! And if you didn’t file for your credit last year (or the year before that, or the year before that…), don’t worry. We can help with that, too!
Many people don’t know this, but you can claim the R&D tax credit for the current tax year plus amend returns for the previous three tax years. For example, in 2023, you could claim credits for 2023, 2022, 2021, and 2020. That retroactive tax filing could be worth hundreds of thousands of dollars (or more) for your company. Neo.Tax doesn’t just stop at your prior three years, though. Due to the mechanics of the credit calculation, it may be beneficial to go back even further to substantiate qualified research activities to maximize the credit in your amended tax years. We can help with that – the lapsing of time is not a limiting factor to our technology! We know that’s getting very inside baseball; again, book a call, and we can talk you through it…
But even those who do know about the value of a Multi-Year Lookback R&D Credit often decide against filing because of the expenditure of time and effort to correctly calibrate the amount you’re owed. The big change with Neo.Tax is that by linking with your existing project-management system, our AI-powered tool can seamlessly identify qualified expenses from past years. What used to be difficult (or impossible, if enough engineers had moved on and are unreachable for interviews) is now quick, low-lift, and much more accurate than human memory could muster.
With Neo.Tax, it’s simple: if your company has a project management system that goes back x number of years, just plug it into Neo.Tax, and our groundbreaking tool can generate the projects and assign the effort for employees across each of those years. In solving for the pain of filing an R&D credit, we also built a tool to make Multi-Year Lookbacks painless and worth it for every innovative company.
The big guys have been claiming it for years. Now’s the time to claim it too.
