Deal qualification process for Research and development

How to create outlook signature

hello there good afternoon and welcome to our webinar my name is Erika Frischmann and I am a small manufacturing business advisor for catalyst connection catalyst connection is a private not-for-profit organization headquartered here in Pittsburgh Pennsylvania we provide consulting and training services to small manufacturers in southwestern Pennsylvania where we help them accelerate revenue growth and improve their productivity through active collaboration with our clients in the manufacturing community at large we contribute to the growth vibrancy and ongoing robustness of manufacturing in our region catalyst connection is supported in part by the Commonwealth of Pennsylvania Department of Community and Economic Development and by the National Institute of Standards and technology's Hollings manufacturing extension partnership I would like to welcome you to our presentation on how to qualify for the R&D tax credit we have partnered with Nick panko from CFO services Nick will provide a basic framework on how to qualify in an overall overall rule of thumb of the amount of credit available to manufacturers nick is the vice president of CFO services and has worked exclusively with R&D tax credits over the last 18 years Nick assists clients in the areas of service innovation client relations strategy consulting advising and managing other Rd engagement managers and integrating internal process capabilities for clients seeking every degree of services related to Rd credits he has numerous experience working through exams of the Rd credit for his clients and communicates with IRS executives on improvements for reducing contentious exams on the Rd credit Nick's background includes planned operation experience at multiple manufacturing facilities and a management consultant role within Deloitte NIC holds a bachelor's degree in chemical engineering enrolled agent license and a master's degree in business administration if you have any questions during the presentation please use the chat function we have muted everyone's phone for the discussion we will be recording this presentation and we'll be sending it out to you via email within the next week thank you for being with us today Nick I will now turn it over to you thanks Erika I appreciate that I hope everybody can hear me and I think this webinar today will be pretty exciting for those who have not heard about the R&D credit maybe you have heard and just don't think you qualify or maybe you're just interested to kind of hear what you know what kind of qualifies for the credit and then how much to take that so you know before we kind of begin as Erika kind of mentioned my background started in manufacturing actually you know being a refinery engineer for a while and process improvements and getting into the R&D credit a long time ago really it kind of lended itself because you know we're looking at these processes and the development and product development and so really fit to kind of have that and the other thing is we kind of giving some benefit to customers that are out there so the first slide is really just kind of something that we we show that hey whatever we're talking about today is not something that we're going to go file you know returns on or just go do that we're just kind of giving you some cursory information that we have to share since we are talking about tax credit and tax information so what are we going to cover everybody you know when we talk about the R&D credit everybody you know research and development everybody usually gets hung up on research rather than the development we a lot of times customers think or clients will think that it's always the very university-based or it's very cutting-edge research that we have to be a part of to qualify but a lot of the effort especially in manufacturing is more in the development effort so when we're talking about development it is going to be more just continuous improvement activities developing our process to be bigger faster stronger which a lot of companies out there doing it but just a little bit of Education in that development side is really what pieces that we can qualify so what we'll talk about today in about the you know forty five ish maybe forty minutes of a webinar that we'll have is what qualifies what can we qualify give you some examples give you some items that we can really kind of you know you know kind of sink into a little bit also try to quantify that a little bit give you guys some perspective of what dollars come out of this how does that work talk about some new things yes there are a lot of new things in the tax obviously tax reform that happened to you know a couple a year or so ago that actually had some big impact talk about some software development pieces that we can pick up in the R&D credit and in today's world everybody's developing software somewhere along the way in some form or fashion so it just depends on on can we qualify that and then I'll give you some examples of clients what type of industry they're in size credit and you know how much it costs to kind of you know capture that that information so I think it'll be educational for everybody at minimum and then maybe it'll be something you can kind of walk away from and really have some some information to kind of capture capture some benefit for your for your company alright so what qualifies for the Rd credit a little bit of background on the Rd credit for those who like tax history because everybody loves a little tax history on a webinar so the Rd credits actually been around since the 80s it was the version started in the 1980s and really it was intended for you know for that research development for the companies that were doing this these types of activities but what happened over time is you know I same thing with tax code it changed a little bit you know and you know things changed over time but typically when we're talking about the Rd credit what we qualify are kind of these four areas right so product development product improvement process development and process improvement and if I don't think I have a pointer but if you guys can see my mouse on the webinar most everybody will assume just as everybody assumes research everybody assumes product development is really the only thing that can qualify for the credit so if I'm developing the latest and greatest phone out there that's kind of the product development everybody kind of gets stuck into that circle but what we really want to make sure you understand is improving our products and improving our process qualified just as much so for an example you know if we are out there you know kind of making one of our clients is a they make Windows window manufacturer and one of their the biggest thing is how do we reduce waste out of our process right and so by improving it in terms of function performance quality reliability if we kind of think in those areas making our process reducing waste reducing downtime those are just as much qualified activities as making the next greatest and latest more efficient window that would be a kind of an example that's out there as well as could be an example of you know just doing continuous improvement to our product right you know if we're making a certain product how we make it better in terms of just quality how does it last longer how does it we reduce failure modes that happen in the fields for our products how do we do that and those are the activities that we can we can pick up and so when you're thinking about the Rd credit don't just kind of get yourself you know in terms of the product development and the research process activities is really where we help a lot of our clients understand what can qualify and what can qualify and that's where the value is especially in the manufacturing setting is is hey how are we how are we building something or how are we making something over time and you know increasing kind of the volume or activities that we do that so qualified activities that's kind of those within of the four buckets I'll stop there anybody's got questions please feel free to ask them we'll kind of answer them as we go we do have a couple typical questions we'll get at the end but you know if you if there's something along the way don't hesitate to ask alright we will keep moving so so now that we've qualified so we kind of look back at those buckets what you know how do we get this from a dollars and cents standpoint the the Rd credit is just as it sounds it to tax credit so it shows up on your tax return you could go find you know there's there's a form 67-65 that you file for this and that goes with your tax return beta if you're an S corp C Corp you know sole proprietor LLC partnership whatever entity you are you can capture this credit it just gets utilized in different ways on the tax return but how do we get that credit is we quantify the qualified research expenses wages supplies and contract research so we look at the activities speed of its engineering product development process development whatever that might be and then we we pick up wages supplies and contract research and I'll sit here for just a for a few minutes and talk about this so wages are going to be people right it's the people's time and effort on those process improvement product development activities but wages includes more than just the direct involvement so if we have an engineering group or we have some engineers or developers that are doing those activities mainly their time and effort on those we can qualify then there's also supporting cast a supporting cast can vary right so let's say we are we go back to the window example and we do run some you know some prototype kind of pieces through manufacturing or the line well those folks who are on the line actually running those prototypes their time and their their wage can qualify and then you have supervisory time that's going to be people who are you know kind of supervising those efforts we can pick up a portion of their time as qualified research expenses one of the things I always like to mention with wages is we don't do not or we do not need time tracking that's everybody's first question they'll even I'll give that as a free question that's out there is you don't need time tracking to kind of show everybody's individual power on this on what we can do is we can kind of have a reasonable method to say hey this person spends let's say 50 percent of their time on these activities at the same time showing documentation of those types of activities is important be it if it's you know we have some testing or we have some you know some project information to kind of show what was qualified so we don't have to have time tracking for wages so that's going to be people's time and effort that's one bucket that we're going to pick up as expenses the second bucket is going to be supplies supplies are things that are going to be kind of used in the research that's going to be materials so let's say we're back into making prototypes so we buy some stuff you know we want to try this new material in a process or we want try a new ingredient or try this new component we buy a couple you know samples of that and we use that and we use those materials be if it's chemical be it if it's other types of supplies prototypes building out prototypes we can pick those up as supplies and depending on the industry so two examples right so we talked about the window manufacture so they might actually make some prototypes and test them out and and you know put them into like a test in and kind of do some testing with it but then there's some comp clients that we have that they can't make a prototype because it's too expensive their product is very highly engineered for it's just big if you think of like an aircraft or ship or things that are they're very large for if it's a highly engineered component you know that we have out there we can't make a prototype so so the one thing I always always kind of lead in with prototypes is that even if I build a prototype and it's the first piece or the second piece and I actually eventually will sell that prototype I can still pick up that cost in my supply category for this hardy credit because it's not doesn't matter if I destroy it or if I sell it or if I don't do anything with it it's really what's going on at the beginning that I'm kind of a kind of a eliminating some of the other technical risk in that development and then any specific equipment sometimes we might have some specific equipment that we get designed and developed for our process that we can pick up some design to effort towards that that equipment and a lot of times that might get kind of you know baked into kind of the capital costs but sometimes a lot of design and development goes into that we can pick up some of those pieces out of those equipment pilot models if we build you know a pilot model process somewhere in our facility or process we can and it's used in development we can pick up those costs of that equipment some cost of machinery but it really just depends if the facts and circumstances when looking at it but it's not just going to be kind of just the materials category and that supplies the third is going to be contract research contract research will be just as it sounds outside engineering test labs so that would be let's say we bring an outside consultant engineer to come in house to do some work for us on a special component where they have some special design you know techniques that we want to use them for we can pick up their cost send stuff out to an outside test lab like ul testing or some sort of kind of specification testing that we need have verified before release out production or full sales we can we can send that out and then consultants are contracted developers maybe we're developing some software and we have some software development that we contract out with that would all kind of go into the contract research bucket in and that can vary I mean there's a lot of different consulting that we can pick up and sometimes it you know sometimes clients will include that in in research development sometimes we'll put it in maybe in more operating expenses but we go through the process of making sure we capture those things and put them in the right bucket so we take these Curie's against what is qualified and the next step is really now we kind of calculate what's the value of the Rd credit because at the end of the day as I said it goes on the tax return it's reducing your your tax liability or your you know basically the taxes you're paying there's a federal component and there is a there's states Pennsylvania does have a Pennsylvania state credit so there's a state component so the way we go back to this is kind of what's oh I had to make sure skip with another slide okay sorry about that we'll cover it will cover the the benefit in just one second to kind of do this but really the biggest thing as we as we transition is to what's new so we've talked about hey what can we qualify what can we quantify and a couple things that I think everybody needs to really think about before we get into the big benefit is what some things that are new out there the credits as I said fit has been around since the 80s and for the longest time it was in a group of provisions in the tax code that were kind of the extenders they were called the quote unquote the extenders and 2015 the credit was made permanent so we didn't have to go through the revolving door of getting this extended every two years and then with the passage of tax reform a couple years ago what happened was the Orange credit actually went up with the lower rates that came in for corporations so if you haven't been capturing the Rd credit in the past few years it actually has become a bigger benefit went up by about 20% with tax reform so so there's a lot of good value that you can capture from these activities that you're doing in your business and it's going up with tax reform too so so this is kind of the piece I wanted to kind of talk about as we captured the dollars so if we look at the Curie's right as I said the Rd credits made permanent so it's a great planning tool from a tax perspective that you don't have to kind of worry hey is it's going to go away or is it not going to go away and to give you the rule of thumb so every dollar that we qualify in that Curie's the wages supplies and contract research the old calc before tax reform basically six and a half percent of that turned into a tax credit so if we qualified let's just use easy math on a million dollars we get a sixty five thousand dollar tax credit and now that we qualify that million dollars with tax reform it jumps up to 79 thousand dollar tax credit and that's a dollar for dollar against taxes paid so it's not a deduction it's below-the-line credit that you can reduce your liability and really it hits the bottom line of your PNL to kind of drive some impact some direct you know cash benefit so those are kind of the rules of thumb is you kind of think about your companies your processes your people and what expenses can qualify that's how we would kind of calculate it as a rule of thumb so that right now it's 7.9 percent obviously there's some other calculation pieces that have to go into it but as a just a general summary 7.9 percent of those expenses would go in it has a tax credit and that's just for the federal portion the state has some different calculation but you know the federal is kind of the big one that's out there so that's kind of the hope that should give everybody a little bit of okay I can see what qualifies in my company I can kind of quantify this at a very high level do I have those qualified activities do I have the dollars what's the value for us a couple piece things that I want to talk about in this slide is very wordy so I try to highlight a couple things and you don't have to really read the slide too much of just understanding the two points so there's really kind of three areas that the RMD credit really can apply to now everybody will kind of again we talked about the three assumptions that hey every basics and research everybody thinks it's only product development and the third thing everybody only thinks it's for the really large corporations so you're really big manufacturers or technology companies or car companies or whatever that might be it's only available to them and it's really not available to kind of that small and medium sized business that's out there but really it is there's kind of two provisions that the creditor really really is focused on those types of companies that I want to address and the first is is AMT and if anybody's ever been to their you know their tax accountant or their CPA and they talk about AMT you're kind of like it's the thing that gets ya right it's the thing that gets you and even for companies and corporations that cannot cannot apply so what they allow in 2015 is the Rd credit can actually be utilized against AMT in the past it wasn't able to so there was companies that we would work with and then we like oh we can get all these R&D credits and do that and then they would say well we're an AMT we say sorry we can't you can get all the credits you want but you'll never be able to use them as long as you're an AMT now they have a carry forward life but once the companies kind of in a empty unless they kind of grow significantly they're going to be stuck in AMT beat if it's an individual or a corporation so now really the test is is if you're if you're a business that is less than 50 million of sales or gross receipts as they kind of term it you can use the R&D credits against an T on an annual basis so it's actually a really good provision for that that medium-sized company that's out there because that's where AMT kind of hits a lot of the times so we can we can really capture the value and don't have to worry about that tax limitation that's out there the second thing for you startup companies that are out there because from a start-up perspective if we talk about the startup company that's developing a technology maybe we're developing a software that's out there are a new product well those first few years you're usually not profitable right just because you're kind of you're spending money you're trying to generate sales but you're also trying to generate product and get that that company going so first few years you're probably not going to have tax right because you're going to have more expenses than you our sales typical so what would happen is the small business would kind of get left out because they'd be doing all this research all this effort and they couldn't get any value from it they couldn't get any cash back from the the R&D credit so again 2015 another great provision that was put in there was this payroll tax credit portion so if you're start-up you probably don't pay income tax but you probably pay payroll tax because everybody pays their their fair share of payroll tax that's out there so they allow this provision so you can elect to use the R&D credit against your payroll tax now there's a couple things that qualify yet one you started up with in the past five years so if you've been around for more than five years you're not going to qualify for this and the gross receipts are less than five million on average in that startup time period so again it's a great piece to get some cash benefit out of this and actually pour it back into the business right away because you're going to pay payroll tax and we can we can use this to offset that payroll tax so you pay less and kind of use that money on just growing your business and not waiting until you have to become profitable to capture that so if you can kind of see the progression you have the small business provision of the payroll tax credit you have the AMT provision for that medium to larger size company and then you just have the normal Rd credit that's get utilized on the tax on your tax return that you while every year okay all right so we're we've got about 15 or so minutes left I want to talk a little bit about software and and I don't want to go through this in too word-for-word detail but software has has evolved over the years back in the 80s when the R&D credit was created we had a lot of mainframes where we still had mainframes that were out there and then we went to a lot of everybody developed their own in the 90s in even in the early 2000s kind of developed their own software internally on their own machines on their own hardware and then really if you think about it we kind of into the cloud when we got into the 2000s into the teens we were able to capture some of those activities but then use the hardware that's worn in a efficient model similar to a mainframe but a little bit faster in that regard because our computing power has gone up well the software rigs in the R&D credit for software development have changed over the years because of those changes that have happened with that and one of the things that changed a few years ago that we don't have to develop software for sale or license or commercial usage we can actually develop software that's just for interacting with our customers so I'm going to give a couple examples that everybody always wants to know about because I know today that a lot of our clients we even have some some retail customers that have retail stores but they develop software to interact with their customers be it if it's through you know website or be it if it's through ordering but that is actually software development that before it wouldn't qualify but now it does and so there's some other industries that can pick up so in my boxes that I have out there if you think about you know website development right if I if I develop some website out there that really is going to kind of provide my customer some key pieces of maybe it's um maybe you have some highly engineered product and they have to go in and kind of figure out the specification of okay what are my parameters and how do I order this product or kind of an ordering tool now they're not necessarily going to order it through there but they're going to size it up so they know what to ask for when they come to your company and they can do that the same time another example would be maybe it's you know one of the examples that's actually in the regulations is you kind of provide a free service right that they come to your your you provide a free service but really on the other end is you're going to kind of sell them maybe some other tools or some other software down the road and but you're providing them that free service that's on your site or it's through something that they deliver in doing that so so you know again I kind of that's a very broad example that's out there but there's there's customers that are out there beat if they're you know if I go back to that window manufacturer example they have a sizing tool that they develop and they put out there so if their customers can kind of go in and size things well the development of that tool they hired some outside developers and that cost actually qualified to put into the RMD credit we were able to pick up so so when you're thinking of software we can pick up some pieces that are out there now any software that goes into the manufacturing process or goes into our product that's easy stuff that we can qualify B if we're doing it ourselves or again we're using as some outside resources we can pick that up as the contract research so-so software is something to think of even if you're not a software development company today you're probably doing some software development somewhere and do it and so this is kind of some examples of some things where it's it's broadened out a little bit be it if it's you know online ordering beat up at some financial services if we're providing some financial you know technology that's out there a lot of manufacturing gets involved where they're trying to reach out to different customers and provide some information beat it through online or in the cloud or even if it's through an app developing an app that might be specific but you're really not charging for it because it's kind of just a something to kind of get clients and customers interested we can pick up those costs as well all right so I think we talked about a little bit about the what we can qualify for the credit in terms of product development process improvement bigger faster stronger we talked about the dollars that go into it we kind of gave a really high-level perspective of how much dollars or how many dollars and we talked a little bit about some different areas that we can qualify this next slide is really kind of this example clients and this should help kind of give you some key pieces of of just what we can pick up now obviously it's a little bit general but are one of the first clients that I have listed there is a metal manufacturer they make different metal products be it if it's from some some harness components they make for serve their customers or they have just certain products they'll make for certain clients and the reason why they qualify is they do they do the design and development on their own dime for their clients to kind of make this work within their process they have you know kind of robotic welding that they're using in their process so some of that cost that goes into developing that that process and that technology for them can qualify as well as they have some OEMs for automotive or industrial applications that they're developing their products to do that and a lot of times they'll develop and they'll take the cost and then under the contract they'll make that back obviously in the piece part of a piece part price that's in the contract so the up for up time and development that you might go through maybe it's in even in the sales process the sales engineering to develop different components we can pick up those costs that people's time and effort and supply cost and so they're about 10 to 12 million sales so they would be able to use that against AMT they wouldn't be able to take the small business payroll tax deduction about 70 people in the company and they kind of generated about 700,000 of qualified expenses in in the year right so that's one year and that kind of equates to about forty five thousand dollars of tax credit that they were able to capture and the second one that I'll talk about is a software company so they they develop software they develop some what they use their software for is a talent acquisition so company would use them from a human resource perspective and they would go out like you hire a new employee and there's some talent stuff that they want to assess them on they develop the software to do that assessment and they're building out they have coders and developers and outside folks that do that and so they're about twenty six you know million of sales there's about a hundred so people in there generate about four million of qualified expenses and their credit is about two hundred fifty thousand and again it varies right so just because you have a large amount of people doesn't always mean you have a large amount of credit and just math just on the opposite just having little amount of people doesn't mean your credit is always little there's facts and circumstances and reasons why and how you know what companies do differently that kind of qualify them more or less for the credit so that's a software example of that can qualified another one is adhesive manufacturing they make adhesives so kind of their you know a lot of chemistry that goes into their products but a lot of times what they're trying to do is you know the efficiencies that are trying to do in their process now they're smaller right they're back six million they qualified for the small business because even though right now they're over five million originally they weren't they were kind of under the five million so they could qualify for that small business payroll tax election 25 people they were able to capture some you know Curie's about 450,000 or qualified expenses and get a credit about 35,000 in that year and then packaging company they make packaging so if you anything that you get from your you know everybody orders online today right from your your Amazon's and your your Walmart's or whatever it is it comes to your house and you open the box and there's a package that your products in well there's a lot of science that actually goes into packaging one from using the minimal amount of packaging but still securing the product right there's actually a lot of science and efficiencies that go into it and then what happens is their customers change the product well it changes the packaging right so we have to redesign and develop that packaging so a lot of design and development that goes into that this company is about 162 million of sales so a little bit bigger they have at 800 people you know they qualified about a million and a half of expenses almost a hundred thousand dollars of credit that they were able to pick up as doing that so so that gives you kind of a broad perspective of some clients that that are out there and in the credits that you see here are the annual amounts and I know we talked about this but this is an ongoing credit so it's not a one-time deal that you get you can capture this once you establish okay hey here's the things that we capture we qualify and on an annual basis just like as you're preparing a tax return you kind of prepare your Rd credit calculation and document that and and then you get that on a kind of an annuity going forward for those activities so as you grow and your research and development grows you get that benefit on an annual basis to do that so we are about you know we're kind about 35 minutes in what I did if there are no questions out there I think we're pretty good yes I kind of put a couple FAQ that everybody usually asks when we talk about these credits a little bit of how does it make sense you know how do I get how do I get the benefit out of this so the first question I ask is can I get refunds for past activities and the answer is yes you can so typically typical is we have three years to open returns that we could go back into so let's say 2019 most everybody's filed they're 2018 return as of today October third you have about 12 days left so to do that so you know if you extend it out but we could go back to 18 17 16 look in those years look at the activities that qualify look at the expenses that we can pick up and do the calculation for each and every year file the refund claims you know into the IRS and get a check back for some of those tax credits now the other situation might be is hey you know what I haven't I didn't have any tax and I had I had some losses so you can still go back and capture those credits the Rd Credit has a 20 year life carry forward on a federal federal side so even if I can't use the credit today I have 20 years to use the credit so it just stays with my my tax return for 20 years and so every year I can see if I utilize it but I could go back into those years I can generate all those credits and I can roll those forward so maybe in 2019 I am I'm really successful and profitable I want to use these credits now you can generate those credits from back then or bring them forward and use them so there's some instances where you get a refund and there's some instances where you're just your tax bill is less so that's kind of the first question I think we actually do have a question for you how do we determine what ERP cost or L for R&D credits that's a great great question I know we had that as kind of one of the boxes and software development a lot of times what we qualify for ERP and the example is in the software regs is developing a middleware right so we're developing a middleware into our ERP so that would be for sake of example say we're installing an ERP and we have a legacy system that's out there B if it's a billing invoice financial system whatever that might be we're not going to shut that down but we're going to keep that activated and we want to bring that data in there but we have to develop a middleware solution beyond being between our ERP and our legacy system well that middleware development activity PDF is the software developer we can qualify that under the software rags and the qualified expenses now on the other side what we usually are it's hard to qualify and the IRS has kind of come out and said hey this is not really qualified activity is just the customization or the utilization of the ERP for our process so ERPs today they're kind of built to allow you to kind of you know just to customize or to utilize their tool to kind of build some pieces of your process in there well that utilization of the tool itself that ERP I know it can get expensive and there are costs that go into it but those pieces are usually hard to qualify for the Rd credit so if we're looking at ERP development it's going to be when we're developing some middleware or some other pieces around the ERP less of the configuration cost that we have to spend just to utilize the software that's how I'd answer that question Thank You Nick any others I think we're all right excellent so the second question I always get asked as we do these webinars is will I get audited if I file for the credits um that's a very good good question right so I answer in a couple different ways filing them in return doesn't make you doesn't slag you in the return in the IRS the IRS does they look at returns they look at a lot of many returns and the IRS looks at a lot of information but just you just because you file for some amended R&D credit refunds doesn't guarantee that you're going to get an audit to give your perspective the Rd credit there's about twelve billion dollars billion with a B that are claimed on federal research credits every year so there are very large tax payers out there that get audited for their Rd credits but they have very large R&D credits we're talking millions of dollars of credits so you know the IRS looks at those at the same time there are some smaller businesses that get picked up for audit but it's it's kind of I would say it's less than 1% in that regard and that's kind of there's actually its stats out there from the IRS that provide that and if your credits only a hundred thousand dollars or maybe it's only fifty thousand dollars maybe it's only fifteen thousand dollars that they also measure that relativity of hey what's our tax liability what's the credit in what's the size of the companies they kind of look at that as well and there's some thresholds that they're kind of looking at internally so you know if you're pushing that threshold and you're over claiming things you shouldn't you probably get something that's picked up but if you're being reasonable and kind of looking at that and kind of doing a quality good process and that's what we try to do doesn't say you won't get audited but more or less you don't but you can and we do have great experience with the IRS and kind of building our reputation through them and with these credits so that's kind of how I'd answer that question will I get audited it's not a guarantee but it's not something to be afraid of either we prepare our we do our work we're really kind of doing this with the perspective that if we got audited we could we here's what we would show the IRS second question our third question why don't I hear about this from my CPA or tax preparer why is this the first time that I'm hearing about you know I think this is kind of a testament to kind of catalyst connection and what they're doing is really trying to get their clients information out there and sometimes there's a specialized pieces just as your products or your Europe processes are specialized there's things in the tax code that are very specialized and so this is one of those specialized areas and the generalists out there and and I think CPAs and tax preparers do a good job in trying to get things in front of their clients but sometimes they just might not have the information that you know or the for the background to really know if something qualify or not qualify and and that's really what a lot of times and then then CPAs tax preparers are always trying to get their pieces of the return done and so we might be an afterthought sometimes too so nothing against them we work with a lot of CPAs and tax repairs they're busy they're doing a lot of different things and they have to know a lot of different things so sometimes they just they might kind of slip their mind and so I think it's just also another way that we can get in front of you know companies out there and we do work with those CPAs and tax repairs and making sure this gets on the return properly next question what happens if I have a loss on my federal return we talked about one is we have a loss we can go back and capture those credits and carry them forward or if we're a start-up we can we can use that startup payroll tax election so I have 20 years I can capture these credits so if I generate credits in 2018 for the 2018 tax year I have till 2038 which seems like a very long time on which it is in 2019 I'd have till 2039 for that year to use those so each year has its own 20 year life and then the payroll tax credit is kind of utilizing the first five years for those startups all right another question that's a good kind of perspective is what does not qualify a couple things I'll kind of mention one would be any research that's overseas and I'll use the saw for development it's always a good a lot of software development happens overseas be if it's in Europe be if it isn't Asia and so if we contract with the company that hey the development is going to happen in overseas that those dollars do not qualify for the R&D tax credit now on the flip side let's say we're going to buy a chemical to kind of evaluate for using in our product maybe we know that he's a manufacturer will be that example that we had before well I purchase it from a company in Europe and I ship it here to Pittsburgh and I do my testing I do my development in Pittsburgh but I bought it from somewhere overseas well that's actually being used in the US so it's all physical location of where I'm doing my development or my research so if I'm if I'm sending stuff out or I'm using resources that are overseas and they're doing it overseas that doesn't qualify but if I'm bringing it here and I'm doing it here or if I are I make people travel from wherever and they come here and do the development for me I can pick up those costs and qualify them a couple other things that don't qualify would be you know funded research so if our customers or clients pay us to do research regardless of the results so if they say hey you know we're going to give you some money and if it works if it doesn't work doesn't matter we're still going to get paid that would be considered funded research on the other side if they say we're going to pay you only if this works to this specification that you're you would have the risk to making that thing work so you could still claim the R&D credit in that regard and there's some general admin stuff that we can't pick up like human resources or accounting or those types of activities that would qualify those would be too far removed as support but as I kind of mentioned before so you can get like you know folks who are doing in the actual manufacturing on the line or maybe quality control or maybe you know purchasing or sales engineering those folks can get involved from this support perspective so those are some examples for us a couple other questions and we'll kind of you know be done here in a second is can I pick up the whole piece of equipment as qualified in a manufacturing setting you know equipment is very expensive so I'll talk about robotic welding we have some clients that they implement a robotic welding into their process and initially one of the pieces was they kind of bought us you know they were going to implement four or five these robotic welding stations within their process so the first one they bought that piece of equipment we were able to pick up a good portion of that piece of equipment because there's a lot of integration risk to integrating that into their process so there's some development cost that got either it was through a consulting firm that was helping them or it was actually through the the manufacturing themselves to kind of getting that integrated in to and they actually bought a used piece of equipment tools which make it a little bit more interesting so they bought that in there and all the design and development time to figure out how do we get our products kind of into that process so we're able to pick up some of that piece of equipment even though it was a capital piece of equipment at the end of the day because it's a credit and not a deduction that that allows us to pick up some of that equipment cost now there's some there's some equipment that our customers will purchase and it's strictly used for research at the onset and maybe maybe not it's going to be used in production really our test that we we look at is when it does become full production when can I actually sell my product or sell things for my process that's when kind of the research development stops in our regard so you know we can pick up actually pieces of equipment not just the you know development or design that's kind of maybe it's you know on the initial piece so the last question and then I think we'll leave it open for any other questions can I claim the credit every year yes yes so if you qualify today we can go back a couple years but you can qualify next year the credit is something we can just as you like on an individual level you get a deduction every year it's the same thing you get it you can get this Rd credit every year and again capture that annuity so it reduces that liability and you can put that money back in the business so those are a couple FA cues that I have out there I think Erika's got a question that's also kind of popped up yep so Nick as a manufacturer where should I even begin with my Rd tax credit journey so I think the way this really works well for clients is really kind of you know come back to myself or the folks at catalyst connection and then what we do is we sit down either through a conference call or we have a meeting and we just talk about high level the what can qualify what what activities are going on what's kind of the overall spend to do that and and really because you know there's a lot more that goes into this that are that we're not covering in the hour but it's really that initial conference call with us in catalyst connection and kind of doing that and at the end of that what we can come back and what we can get to the end of that call is saying okay yeah this makes sense we should capture this Rd credit or it really is there really nothing that qualifies to extent of a large enough benefit to warrant going through a capturing that and then that next step is really getting a couple other key pieces of information to give you guys a proposal of here's how much the benefit would look like here's what's needed to kind of capture that there's some documentation requirements that's that you need to go through and that's where we get involved of documenting that making sure we're maximizing the benefit but also being reasonable with how we're presenting this in case there is ever exam and then you know there's that costume in that's involved with that so the way I would start is you know if you think you qualify or even if you think maybe maybe not reach out to us that initial proposals through that proposal pace and benefit there's no cost for you guys to have that it's really all everybody's doing the due diligence to figure out can this fit can we get some benefit can we get some refunds do par we end up you know are we doing the right activities so I'd say reach out to to myself or reach out to the folks at Kyle's connection here and we can definitely figure that out for you no cost to you it's really just a initial conference call and getting that figured out NIC another question and again if you have any questions please send them through the chat function and we'll give them the NIC to answer another question came through you know what Nick I have 27 competing priorities on a daily basis if I pursue the Rd tax credit is this going to be an administrative burden for us to be able to track moving forward yeah very good question okay I do not want this to be something where it takes you hours and hours and hours and hours and hours and days and days to kind of figure this out our biggest approach in this is that there should be some level there has to be some level of information we try to use whatever documentation you already have in the company and part of our process is also developing that documentation for you so yes we do need some of your time but it would be a few hours if we're the example that I gave on the previous slide the clients is probably a individual from finance spent a couple hours pulling some information for us and then maybe it was a conversation with the folks from engineering so maybe one or two hours of somebody's time but it's not everybody and it's not a lot of time so we try to eliminate the administrative burden there's a balance to it and we're also that's part of our process is making sure we can what we can do so it's not such a burden to kind of capture this ongoing basis perfect so this is our final call if you have any questions for Nick go ahead and send them through the chat function all right we'll Nick thank you so much for joining us today I miss Nick said if you have any further questions feel free to contact us here at catalysts connection or contact Nick directly and we'll work to get you the answers you need to be able to address your Rd tax credit questions thanks again and hope you enjoy the rest of your day