Pharmaceutical, biotechnology, and medical device companies are strong candidates for R&D tax credits. Most of these firms have activities, processes, and costs that make them immediately eligible for federal and state R&D tax benefits, which were created to promote growth and innovation within the industry.
But only a few actually claim these benefits. There are two main reasons why:
- Misconceptions about qualifying processes and the complexities of claiming R&D tax benefits cost businesses millions of dollars in savings. A wide range of activities qualify life -science companies for the lucrative R&D tax credit — designing new drugs, compounds or medical devices; developing new applications for existing drugs, and new methods for drug delivery; conducting tests to satisfy government regulatory requirements prior to commercialization; developing new or improved techniques or formulae, and more. What’s more, these tax credits can also be carried forward for up to 20 years.
- Many life-science companies are pre-revenue, or have little revenue with no profits for years to come. Under current tax laws, Qualified Small Businesses (startups) like these can monetize R&D credits by using them to offset a portion of payroll taxes. In the past, young businesses that had no income and therefore no taxes to pay were not incented to claim R&D tax credits, even though they could carry them forward for up to 20 years. Now they can!
Here’s how it works:
- Qualified Small Businesses may offset the Employer portion of the FICA segment of their payroll taxes, using R&D tax credits claimed on their federal returns.
- R&D tax credits can be applied against quarterly payroll tax payments in the calendar quarter after the federal return is filed.
- In any given year, the taxpayer can use up to $250,000, carrying forward what they don’t use to future quarters.
- This is a significant positive change to the code that can give a startup company an immediate cash benefit.
BRS’s team of highly qualified engineers, scientists, and accountants is well-positioned to help your company analyze and evaluate its qualifying activities, and to follow through with the documentation required to capture valuable tax credits — which you can then reinvest in further innovation.