Apex Advisors

Fostering growth and innovation through intelligent tax solutions
  • About
  • Solutions
    • R&D Tax Credit
    • Work Opportunity Tax Credit
    • Cost Segregation
    • Section 179D
    • New Markets Tax Credit
    • IC-DISC
  • Industries
    • Manufacturing
    • Architecture/Engineering/
      Construction
    • Software
  • News
  • Contact

Further Expanding the Benefits of the R&D Tax Credit

Having finished the initial round of tax filings for the 2018 tax year, many CPAs have learned that the Tax Cuts and Jobs Act, has resulted in significant impacts to companies and individuals alike.  The changes have led to increased revenue in predictable as well as unforeseen ways.  The predictable impacts have been accounted for, but the unforeseen impacts have sometimes turned into a bonus to the bottom line.

As predicted, the change to the corporate tax rate has resulted in a significant tax savings to C-Corps.  An impact of this change that was not originally foreseen, is that the change in the corporate tax rate has had a major impact on how the Research and Development Tax Credit is adjusted from the gross figure to the net benefit.  

Under IRC 280C, the common formula used for calculating the net R&D credit rate utilizes the current corporate tax rate as the rate of adjustment to achieve the credit’s net benefit.  The decrease in the C-Corp tax rate subsequently results in an increase in the value of R&D credits.  Previously, 35% was subtracted from the gross credit amount, but now 21% will be used for tax year 2018 and forward.  Thus, 79% of the gross credit can be utilized rather than the 2017 adjustment amount of 65% of the gross credit.  This change is not limited to C-Corps, but instead impacts all entities who benefit from the R&D Credit.

The changes to the net credit adjustment have led to significant benefits across a multitude of industries.  To illustrate the benefits, Apex Advisors has selected three client case studies from the most common industries for which we perform studies.  Smaller revenue clients were chosen to keep the article relevant to a wider audience.

Industry Examples:

Architecture Firm

  • Annual Revenue: $5 Million
  • Gross Federal Credit: $217,000
  • Pre-2018 Net Benefit: $141,050
  • 2018 Net Benefit: $171,430
  • Resulting Benefit Increase: $30,380

Electronics Manufacturer

  • Annual Revenue: $19 Million
  • Gross Federal Credit: $262,000
  • Pre-2018 Net Benefit: $170,300
  • 2018 Net Benefit: $206,980
  • Resulting Benefit Increase: $36,680

Software Company

  • Annual Revenue: $3 Million
  • Gross Federal Credit: $493,000
  • Pre-2018 Net Benefit: $320,450
  • 2018 Net Benefit: $389,470
  • Resulting Benefit Increase: $69,020

The passage of the Tax Cuts and Jobs Act reinforces the significance of the R&D Credit.  All of the benefits added in 2015 remain unchanged, and the repeal of the corporate AMT and lower tax rate make the R&D Credit a more lucrative and stronger incentive for businesses to innovate and invest in the US.  The above illustrated case studies demonstrate these facts. 

Staying true to the intent of the credit, the change to the C-Corp tax rate has resulted in each of the case studies above enjoying a revenue increase that offsets the salary associated with hiring an additional employee. 

How to Claim the R&D Tax Credit for Internal-Use Software
Refundable R&D Credit Benefits Doubling?

Written by Apex Advisors

Apex Advisors
Apex Advisors is a tax specialty services firm dedicated to helping businesses innovate and grow in today’s increasingly competitive global marketplace. Founded in 2001 and headquartered in Los Angeles, California, Apex Advisors helps businesses claim valuable tax credits through a variety of federal and state programs, including Research & Development Tax Credits, Work Opportunity Tax Credits, Enterprise Zone Tax Credits, Sec. 179(d) and many others. Our experienced staff of accountants, tax attorneys, engineers, and former IRS agents and attorneys work closely with clients to provide the extensive research necessary to maximize tax benefits and provide rigorous defense against audits. At Apex Advisors, we invest in strong relationships that deliver better results. For more information, visit www.apexadvisorsus.com.

Related Posts

  • Saving Your Business With the Employee Retention Credit

    As businesses recover from the impact of Coronavirus help is available for small businesses to greatly offset the cost maintaining a staff. The Employee Retention Credit is a refundable credit that greatly rewards employers for hiring and maintaining a staff, and also provides a stimulus for growth.
    read more
  • Predicting The Tax Consequence Of The PPP

    2020 has been unpredictable and the PPP Loan repayment is no exception. This brief article explores some of the ideas being kicked around and adds a new option as well.
    read more
  • The Predictable Resource That Helps in This Unpredictable Time

    The R&D Tax Credit is a predictable resource that can be used to access capital and compliment Covid-19 financial stimulus bills.
    read more
  • Giving Credit to Defense Contractors

    Courts have decided that Defense Contractors have a right to collect the R&D Credit, and this article explains how previous hurdles have been removed to make the credit more readily available to companies in the defense industry.
    read more

Leave a comment Cancel reply

Your email address will not be published. Required fields are marked *

Recent posts

2021.03.17
As the second quarter of 2021 quickly approaches, many businesses are looking for a means to obtain the
2020.11.10
Imagine a year of surprises nearly every Monday, long established traditions being paused or deleted, and new behaviors
2020.04.27
As everyone is aware, over the past month we have been confronted with an extremely complicated set of

Archives

  • March 2021
  • November 2020
  • April 2020
  • January 2020
  • September 2019
  • April 2019
  • July 2018
  • February 2018
  • November 2017
  • October 2017
  • September 2017
  • July 2017
  • July 2016
  • May 2015
Apex Advisors
  • Facebook
  • Twitter
  • Linked In

A 3460 Wilshire Blvd. Ste 900, Los Angeles, CA 90010

e info@apexadvisorsus.com

T 1.844.900.APEX

D 1.213.487.3333

F 1.213.487.3334

© 2020 Apex Advisors. All Rights Reserved.