Extend Your Cash Runway with the R&D Tax Credit

Your $1M in SBIR funding could be worth about $50,000 in refundable R&D tax credits according to John Berry, Business Development Specialist at Hull & Knarr, a financial services firm that specializes in this sort of thing.  

Does your business engage in any of the following – designing new products, developing new software, creating prototypes, improving existing products and processes?  If so, you could be eligible for the R&D Tax Credit. This federal and state government-sponsored incentive rewards companies for innovating and conducting their research and development activities in the US.

The credit amounts to approximately 10% of qualifying wages, supplies and contract research, and you don’t have to be large or well-established to realize the benefits. Although it is often used to offset income tax, the credit can also be used to offset payroll tax, which is an attractive option for startups.  

Berry notes, however, that “there is a lot of misinformation out there, including the notion that SBIR/STTR work doesn’t qualify because it is funded research.” The courts have proven otherwise. If your company can demonstrate that it retains the rights to its research results and it bears the financial risk of failure, then a case can be made for eligibility.

“Your company should have proper documentation and quantification in case of an audit,” says Carlos Freitas, Managing Director at Hull and Knarr. This includes tracking research activities through such things as payroll records, general ledger expense detail and project lists, to name a few.

Freitas adds that “the R&D Tax Credit offers some other benefits as well. It can be claimed on current and prior tax years, and the payroll tax credits can be carried forward to a buyer.”

And, of course, stretching your cash in these extraordinary times couldn’t hurt either.

Additional Resources:

Do You Qualify for the R&D Tax Credit?

Wisconsin Department of Revenue

Wisconsin R&D Credit is Now Refundable

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