While R&D tax credits offer significant financial advantages, many businesses make errors that can lead to reduced claims, audits, or even penalties. Here are common mistakes to avoid when claiming R&D credits.
1. Failing to Identify All Eligible Activities
Many companies mistakenly believe that only groundbreaking inventions qualify. In reality, incremental improvements to products or processes can also be eligible.
2. Poor Documentation
The IRS requires detailed records to substantiate claims. Failing to maintain adequate documentation can result in denied credits during an audit.
3. Misclassifying Expenses
Not all expenses qualify. Ensure that wages, supplies, and contract research are correctly categorized.
4. Not Reviewing Past Tax Returns
You can amend prior tax returns to claim missed R&D credits. Overlooking this opportunity can result in lost benefits.
5. Ignoring State Credits
In addition to federal credits, many states offer R&D tax incentives. Failing to claim these can leave substantial money unclaimed.
6. Handling Claims Internally Without Expertise
R&D tax credit rules are complex. Working with a specialized tax consultant can help ensure accuracy and maximize your claim.
Conclusion
Avoiding these common mistakes can help your business fully benefit from R&D tax credits. Proper documentation, expert guidance, and a thorough review of activities and expenses are key to maximizing your claim.
