Effortlessly Manage Your Invoice of for Research and Development

Invoice of for Research and Development

more businesses than ever could potentially qualify for the research and development tax credit however many are left wondering well how does the r d tax credit work unless you're some sort of expert CPA then you probably have questions that need answers so today I'm going to explain to you exactly how the r d research and development tax credit works so stick around you're not going to want to miss this I'm rich Smith and one of the money lessons you never learned in school is how tax credits work especially when you own your own business now the research and development tax credit has been around for a while but it seems like so few people truly understand how it works who qualifies and how to get that money back in your pocket so real quick before I break it down for you drop a like for this video it helps spread the word to other business owners like yourself now I've done videos on what the research and development tax credit is but people might still be wondering well how does it all work though for example how would it apply to yourself well simply put this is a dollar for dollar tax credit that can be applied to your tax bill both with the IRS and at almost all state levels so long is your designing developing improving your business we're talking business products business processes maybe you have some business software that you use and develop so yeah I don't want you to sit there and disqualify yourself thinking that you don't have scientists on staff so this probably doesn't apply to you that's an old way of thinking so let's just put that aside so who qualifies for This research and development tax credit it is any businesses who have us-based employees maybe us-based contractors who have supplies that they spend money on and then they are trying to develop something they're trying to improve something I'm going to back away from like scientific words like experimentation just think of trial and error if you in your business at any time have some sort of project that's going on and you set a goal and you're working towards it and there's some uncertainty there right maybe there's even some failure so you iterate you're like playing around in that proverbial sandbox if you will and then you test something out again and you keep doing that and you keep improving it and then eventually you you're happy with that that project comes to an end but then what do you do right you move on to the next project well all the wages that you spend doing those projects all of the you know contracted you know independent contractors contracted employees that you have um you know not W-2 but the people you spend money on for other you know things and services and then any of the supplies that you use those three items the wages the contractor expenses and the supplies can be used to calculate uh tax credit for your business now ballpark what are we talking well it's usually in that 10 percent range you got to do the calculations and you're going to need some help with that don't get me wrong it's it's not the it's not a very easy tax code this uh this government gives us here but I just want to point out no industry no business is excluded from this so yeah some businesses some Industries might might seem like no-brainers they should definitely take advantage of it and then other ones they probably just have to think about it a little strategically maybe kind of answer a couple of you know questionnaire style questions and then if indeed they qualify well then that's money in the bank so let's just talk activities we're not going to talk any specific businesses just going to talk about the types of activities that usually fall underneath this purview this umbrella of the research and development tax credit let's just talk about products if you're developing products if you're improving products these could be like tangible things but honestly it could also include intangible things and again I don't want to lose anybody what is like a intangible product it just means it's something that you make that isn't physical you can't actually touch it but think of all the businesses that exist online and produce products that you don't physically touch therefore they would be considered intangible up next would simply just be processes think of your business and its workflow I love looking at those business workflows like where the customer is how it goes here where it goes and then you know when it finally ends if you have one of those Maps one of those journeys of a customer and you know that you're developing some sort of technical process some sort of workflow for a manufacturing process how you do things developing those processes indeed counts and then one of the last like activities I'll throw you away I'm just going to kind of like kind of put mush these like three together would be techniques inventions and of course software those are such broad terms we're talking techniques inventions uh software you know if you have a a new and improved Innovative way of doing something using something in your business than those types of activities you can take a look at and see if they qualify now moving on this next part this next phrase if you Google it if you ask your accountant or CPA about it it's going to be where you're going to lose some people simply because it is written by the IRS so it's my job to break it down for you and this is known as the research and development the r d four-part test you see the IRS says listen if you want a business expense to actually count towards this r d tax credit then we just have to answer four questions um to pass this like four part test and then that expense could qualify the first one is is the expense leading towards some sort of improvement or some sort of creation of a product of a software of a process like I mentioned before of course you're going to be able to answer yes for the item at least that you're thinking of because that's what brought you to this video and you know that your improvements your experimentation your Innovations are indeed leading towards something in your business question number two is going to be is it technical in nature you see everything comes down to the idea that research and development is based somewhat in the hard Sciences think about all the sciences that you learned in school the ones where you would have some sort of research lab component you know when you had to do little experiments tracking data trial and error finding out what works and what doesn't is technical in nature that's based on science so if you do that in your business then you're probably going to be able to answer yes to that second question the third one's really cool in my opinion because it asked you was there some uncertainty in the development or in the Improvement of whatever you are developing whatever you are researching and of course there is some uncertainty when you are trying something new for the first time when you are trying to improve stuff for example like if you are simply following a recipe you know step one step two step three then there's really not gonna be any uncertainty there but if you are out there innovating you're adding a little bit of this a dash of that excuse the baker analogies well then you know that you're not exactly sure how it's going to end up you could have an idea and then you test it out and if you don't like it you go back to the drawing board and then you try it again and question number four of that four-part IRS test is was there some sort of trial and error process it kind of goes back to question three with the uncertainty but did you actually trial and error in the development of this product because there was indeed uncertainty it's kind of like if you answer yes to three and you're going through the development process then you're going to be able to of course answer yes for four all right big picture key takeaways this type of video is now not easily digestible we're talking about taxes we're talking about research we're talking about development this applies at the federal level the state level and across any and all U.S based businesses who can potentially apply so again I'm going to leave a link Down Below in the description if you want to learn more I've partnered with multiple companies to try to help you get this information I have found that many of them work very well with your own account with your own accounting team with your payroll team they make it easy to get the answers to that four-part test and then Implement that tax credit I think I mentioned it before they can go back retroactively and collect it for a few years if you haven't gotten it in the past and you can even carry the credit forward yes this also applies to startup businesses you know if you just got going in the past three to five years you should look into this too and if you if you have any questions leave me a comment down below there's not a ton of information out there on the internet about this so maybe we can all help each other learn again down below in the comments don't forget to check out my website it is full of other business articles podcasts information about things you may or may not already know about and if you're new to the channel don't forget to hit subscribe and ring that notification Bell alright as always I'm rich and until next time