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Tax Attorney R&D Credit Guidance

At LS Carlson Law, our experienced tax attorneys can assist you with the Research and Development (R&D) Tax Credit, also known as the Research and Experimentation (R&E) tax credit. This federal benefit, established under 26 U.S. Code §41, provides a valuable opportunity for businesses engaged in the development, design, or enhancement of products, processes, formulas, or software. Our dedicated team is well-versed in the complexities of this credit and is committed to helping companies leverage it effectively. The R&D Tax Credit, introduced in 1981 to foster innovation and domestic development, extends its advantages to a wide range of industries, including but not limited to aerospace, agriculture, software development, and manufacturing.

By partnering with LS Carlson Law, you gain access to numerous potential benefits. These advantages encompass the ability to receive up to 12-16 cents of federal and state R&D tax credits for every qualified dollar spent on eligible activities. Furthermore, these credits translate into a dollar-for-dollar reduction in your federal and state income tax liability, enhancing your cash flow and potentially increasing your earnings-per-share. Additionally, our experience allows you to carry forward the credit for up to 20 years, and we can perform look-back studies to uncover unclaimed credits for open tax years, typically extending back three or four years. For certain startup companies, we can even help you apply the federal R&D tax credit against payroll taxes, making it an invaluable tool for fostering growth and innovation. Contact us today, and let us help you make the most of the R&D Tax Credit for your business.

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In the Aerospace Industry, discover the hidden treasure of R&D Tax Credits. These credits offer dollar-for-dollar refunds for activities related to developing new products and processes, helping fund hiring, R&D expansion, and facility upgrades. Credits are often overlooked in areas like computer-aided design, prototype testing, and process optimization. Eligible small businesses can offset AMT liability, and start-ups can cut up to $250

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Agriculture companies can uncover significant research credits, often ignored, for equipment optimization, quality assurance improvements, and more. Qualifying activities range from CAD prototyping to regulatory compliance. Potentially qualifying roles include CNC Operators, CAD Technicians, and Design Engineers. Realize substantial credits, like one firm that secured $1,000,000 annually. Offset AMT liability for tax years starting after 2015. Explore Agriculture's untapped R&D potential with us.

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The Architecture and Engineering (A&E) industry can tap into substantial research credits for activities like achieving LEED certification and innovative design. These credits provide vital resources for hiring and growth. Many A&E companies overlook these credits. Explore R&D opportunities in the A&E industry with us, offset AMT liability, and leverage up to $250,000 against payroll taxes for qualified start-ups.

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Unlock valuable research credits in the Automotive Industry for activities like CAD modeling and manufacturing enhancements. These credits often go unnoticed but can fund hiring and R&D expansion. Qualifying roles include Automotive Engineers and Brake Specialists. Offset AMT liability and cut up to $250,000 in payroll taxes for start-ups. Explore your Automotive R&D potential with us.

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The Brewery Industry can access substantial research credits for product development and manufacturing technology refinement. Often overlooked, these credits offer cash savings for hiring and R&D expansion. Discover untapped R&D potential in brewing, offset AMT liability, and use up to $250,000 against payroll taxes for qualified start-ups.

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The Chemical & Formula Industries offer valuable research credits for product and process development. These credits provide essential resources for hiring and R&D expansion. Credits are often overlooked in areas like material development and automation. Explore your Chemical & Formula R&D potential, offset AMT liability, and leverage up to $250,000 against payroll taxes for start-ups.

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The Foundry Industry offers valuable research credits for improving metal casting processes and developing new technologies. These credits often go unnoticed but can fund hiring and R&D expansion. Explore your Foundry R&D potential, offset AMT liability, and use up to $250,000 against payroll taxes for start-ups.

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In the Life Sciences Industry, discover research credits for activities like clinical trial production and pharmaceutical development. These credits offer cash savings for hiring and R&D expansion. Explore untapped R&D potential, offset AMT liability, and use up to $250,000 against payroll taxes for qualified start-ups.

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The Machining Industry can access substantial research credits for activities like CNC programming and prototype development. These credits provide resources for hiring and R&D expansion. Qualifying roles include CNC Programmers and Mechanical Engineers. Explore your Machining R&D potential, offset AMT liability, and use up to $250,000 against payroll taxes for start-ups.

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Unlock valuable research credits in the Manufacturing Industry for activities like prototype development and quality assurance improvements. These credits offer cash savings for hiring and R&D expansion. Explore your Manufacturing R&D potential, offset AMT liability, and use up to $250,000 against payroll taxes for qualified start-ups.

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The Software Development Industry can access valuable research credits for activities like software design and coding. These credits offer cash savings for hiring and R&D expansion. Qualifying roles include Software Developers and Programmers. Explore your Software Development R&D potential, offset AMT liability, and use up to $250,000 against payroll taxes for start-ups.

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The Tool & Die Casting Industry offers substantial research credits for activities like automating machining processes and testing new materials. These credits often go unnoticed but can fund hiring and R&D expansion. Explore your Tool & Die Casting R&D potential, offset AMT liability, and use up to $250,000 against payroll taxes for start-ups.

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The Winery & Vineyard Industry holds untapped potential for substantial research credits, providing annual cash savings for product and process enhancements. These credits can significantly benefit businesses by facilitating hiring, boosting R&D, and expanding production capabilities. Explore the uncharted potential of R&D credits in the Winery & Vineyard Industry with our assistance, offsetting AMT liability for eligible small businesses and using up to $250,000 against payroll taxes for qualified start-ups.

Frequently Asked Questions

The Research and Development (R&D) tax credit is a valuable incentive designed to encourage innovation and technological advancement among businesses. It operates by allowing a percentage of the qualified research activities conducted in the current year, which surpass a base amount determined using historical research efforts and investments, to qualify for the R&D tax credit. Typically, this credit equates to 6% to 8% of a company's annual eligible expenses and can be applied directly against its federal income tax liability on a dollar-for-dollar basis. In essence, this tax credit rewards companies for investing in research and development, fostering growth, and fueling innovation.

Determining eligibility for the R&D tax credit is a multifaceted process. It involves assessing qualified research expenses (or costs) for both a historical reference period and the period for which the R&D credit is being sought. Specifically, we calculate the average share of gross receipts represented by R&D expenditures during the historical reference period, which is often referred to as the "base percentage." Then, we compare this base percentage to the R&D expenditures incurred in the current period. The credit is designed as an incremental credit, applying only to the portion of R&D expenses that exceed the calculated base amount. Essentially, eligible businesses are those that are investing in research activities above and beyond their historical research expenditure levels, fostering continuous innovation.

While the R&D tax credit is often associated with traditional research laboratory work, it is important to recognize that it extends to a broad range of industries and activities. For instance, it can be applicable to projects conducted by venture capital (VC) firms and healthtech companies that seek to drive innovation in their respective sectors. Additionally, businesses that leverage data to develop innovative solutions for their customers can also harness the tax credit to obtain a significant return on their research investment. In essence, the R&D tax credit encourages creativity and inventive problem-solving across various industries and research endeavors.

The R&D Tax Credit, formally recognized under 26 U.S. Code §41, is also referred to as the Research and Experimentation (R&E) tax credit. This federal benefit provides companies with a direct dollar-for-dollar cash savings for engaging in activities related to the development, design, or enhancement of products, processes, formulas, or software. Essentially, it serves as a financial incentive that rewards businesses for their contributions to technological advancement, innovation, and the overall growth of the economy. By reducing the tax liability of qualifying companies, it encourages ongoing investment in research and development activities, ultimately benefiting the broader business landscape.

Recent legislative changes, specifically the Inflation Reduction Act, have increased the maximum amount that qualified small businesses (QSBs) can utilize from the Sec. 41 research credit (R&D credit) to offset certain payroll tax liabilities. This increment has raised the threshold from $250,000 to $500,000 for tax years beginning after December 31, 2022. This enhancement provides significant financial relief to QSBs, allowing them to mitigate their tax obligations and retain vital capital for business growth and innovation.

The R&D tax credit offers startup businesses a unique opportunity to minimize their tax liability and retain cash within their operations through the federal payroll tax offset. Essentially, this credit helps to preserve working capital, thus enabling startups to channel their resources into essential growth initiatives, such as expanding research and development efforts, hiring skilled talent, and acquiring cutting-edge technologies. By reducing tax obligations and increasing liquidity, the R&D credit empowers startups to pursue innovative projects and compete more effectively in the market.

Businesses that find themselves with unused R&D tax credits still have opportunities to leverage these valuable incentives. If a company failed to claim the credit in previous tax years, it can file amended tax returns for those years to rectify the oversight. Once the credit is properly claimed, businesses can carry forward any remaining unused credits for up to 20 years after the initial carryback year. This carryforward provision ensures that companies can access the full benefits of the R&D tax credit over an extended period, allowing them to continue investing in research and development activities, fostering innovation and growth.

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