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Summing It Up

Keeping you ahead of the curve with timely news & updates.


Does Filing for R&D Tax Credits Raise an Audit Red Flag?

Does Filing for R&D Tax Credits Raise a Red Flag?If your company relies on the hard sciences or uses technology to create or improve products or processes, then you may be eligible for the federal Research and Development Tax Credit. Fear of being audited makes certain taxpayers (generally smaller companies, with limited resources) choose not to claim the R&D tax credit even if they may qualify.

IRS or state audits can certainly take an extraordinary amount of time and resources to handle. However, misconceptions abound about attempting to claim the R&D tax credit and the likelihood of a future audit, possibly stemming from the credit being a Tier 1 issue (i.e. top priority for review) in the IRS old “tiered” system for tax examinations and enforcement. The IRS discontinued the tiered system in 2012 and now leaves the choice to audit R&D tax credits to the discretion of field auditors. Further, recent taxpayer-friendly law changes and announcements clearly identify the importance of the credit as a matter of tax policy and global competitiveness. This in turn suggests that the IRS will not view R&D credit claims with the same level of skepticism as they did historically.

Bogus R&D Tax Credit Claims

There’s no doubt that some taxpayers that don’t qualify still claim fictitious or egregious credits. If a company that researched Van Gogh’s life tried to claim R&D credit, they would be denied because research in the social sciences (economics, business management, and behavioral sciences), arts or humanities is excluded from the definition of qualified research. However, a company that developed new formulation of artists’ paint would not be excluded, however.

Factors Considered by the IRS to Audit a Taxpayer

Certain factors can increase the likelihood of your R&D credit claim being audited:

  • The overall size of your credit claim. The larger your credit claim, the higher the likelihood of audit.
  • The credit you claim versus your industry average.
  • Filing an amended return that claims the R&D credit can also increase your chances of an audit, as all amended returns routinely receive additional attention from the IRS.
  • The industry you are in.  If IRS perceives potential abuse within an industry, you may have a higher likelihood of audit.
  • If your NAICS business code is one that indicates you may not be eligible, then you probably have a higher likelihood to get audited. Examples of such businesses include hair salons and restaurants.

How to be Successful on an R&D Tax Credit Audit

One secret: documentation, documentation, documentation. Regarding the quantitative aspects of claiming the credit, it is important to substantiate the amounts of your qualified expenses with proper records that clearly demonstrate the nexus between the activities performed and amount of credit you’re claiming. Regarding the qualitative aspects of the credit, it is important to provide documentation and/or create a narrative that addresses the IRS criteria to validate the eligible nature of qualifying R&D activities. Establishing the proper framework for supporting the R&D tax credit significantly increases the likelihood the claimed will be accepted on audit for both original and amended returns.    

Other tips for a successful audit:

  • Don’t go at it alone or rely on your deliverable alone. Bring in an experienced R&D tax credit specialist.
  • Respond timely to information document requests (“IDR’s”).
  • Know the IRS audit techniques guides, which the IRS publishes to inform field agents of areas to focus on.
  • Treat your IRS agent with respect.  

The R&D credit can provide a tremendous benefit to the right companies. Simply filing an R&D credit claim won’t cause an audit. However, working with tax experts familiar with the R&D tax credit and audit process will help to: (1) ensure the R&D tax credit claim will survive an audit (2) to identify efficient processes for supporting the R&D tax credit claimed every year.   

Please call us today at 716.847.2651 if you would like to speak with us in more detail about the audit process or to evaluate whether your company may be eligible for the R&D tax credit.  

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Don’t Overlook General Business Credits Carryback

You may still be able to use credits even if they’re greater than your tax liability

general business creditsWith businesses and individuals in full swing planning for filing their 2017 taxes, to the extent possible, it’s important that General Business Credits not be overlooked. In fact, this topic should be on your discussion list, and this blog post can help you understand the current and past opportunities you may have.

Comprehensive-List-of-Biz-Credits.pngThe General Business Credit is a collection of different credits available to both business and individual taxpayers., computed on specific tax forms. If you qualify for more than one type of credit, your tax consultant will file Form 3800. It’s important to note that any credit may be subject to a limitation based on your tax liability.

The credits individual taxpayers will be most familiar with include those for energy efficient homes and electric cars.

However, many individuals who are shareholders in an S-Corp or partners in a partnership may be familiar with those credits available for increasing research activities, disabled access, work opportunity, etc.

When the Tax Credit Exceeds the Tax Liability…

In certain situations, these credits can be substantial and you could run into the situation where the credit you are entitled to exceeds your tax liability for the year which could typically happen in a year when you experience a net operating loss.

Important note #1: Unused credits may be carried forward to be used over the next 20 years.

Important note # 2: General Business Credits may also be carried back one year, to the first preceding tax year, as long as the particular credit you are claiming was allowable in that tax year.  This would generate a refund of tax paid for that prior year, and can be accomplished easily for individuals or businesses by filing the appropriate form to apply for a tentative refund of tax, rather than having to amend prior returns.

Important note # 3: Any unused credit left after the carry back can then be carried forward twenty years.

General Business Credit Carryback Example …

One of Freed Maxick’s clients had a significant credit that could not be used this year due to a net operating loss generated by changing the method of accounting. By carrying that credit to the prior tax year, the client was able to receive a significant refund of tax paid that year.

The moral of the story:  don’t overlook the ability to carry back those credits.

Connect with the Tax Experts at Freed Maxick

Tax Situation ReviewIf you’re interested in minimizing your current, past or future Federal and State tax obligations, give our tax team a call at 716.847.2651, or connect with a simple click.

Let us show you why “Trust Earned” is a lot more than a slogan – it’s the core of our mission and business purpose.

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3 Reasons That Small Businesses Overlook the R&D Tax Credit

Reasons-Small-Businesses-Overlook-the-R&D-Tax-Credit-LARGE-771845-edited.jpgThe R&D tax credit can deliver significant tax savings, but many small businesses don’t realize it’s available to them.

Yes, there is a tax credit available to all businesses, including small businesses, for R&D costs. The tax credit has been a part of the tax code in some form since the 1980’s, although for the vast majority of that time it was considered “temporary.” It had to be extended 16 times before being made permanent in the Protecting Americans from Tax Hikes (PATH) Act of 2015. Perhaps the on-again/off-again uncertainty of the tax credit’s availability has led to its underutilization by many of the businesses it was designed to help.  

Whatever the cause, so many eligible taxpayers are failing to claim the available small business R&D tax credit that some members of Congress have introduced legislation aimed at improving government efforts to educate small businesses on the topic. There are two bills currently in the Senate and House, S. 650 and H.R. 1543 that would require the IRS and the Small Business Administration to work in partnership to develop basic training sessions and related information relating to federal income tax credits, especially R&D tax credits that benefit small businesses and start-up companies.

Those efforts should focus on 3 main problems:  

  • Small businesses don’t know the R&D tax credit exists. In the early stages of a business, tax planning sometimes takes a back seat to tax preparation. Owners who prepare their own tax returns or rely on tax preparers with limited experience may fall into the trap of “doing it like last year” instead of analyzing each year’s income and expenses with a clean slate. A failure to recognize the availability of the R&D tax credit in one year can be compounded by repeating the mistake in future years.
  • Small businesses don’t think they have R&D expenses. Many taxpayers skim past the R&D tax credit because they assume it’s only available to companies “in the business” of research and development, like a pharmaceutical or technology corporation. In fact, the tax credit is based on the activity performed, not the industry of the taxpayer. Costs may qualify for the tax credit if the activity:
    • --Is designed to eliminate a technical uncertainty,
    • --Includes some process of experimentation,
    • --Is technological in nature, and
    • --Is intended to create a new or improved product or process.

Activities focused on improving or redesigning existing products, as well as designing new products, can qualify. Costs associated with creating or improving a manufacturing process or new software may be eligible. Recent IRS guidance even eased limitations on eligibility of R&D expenses related to the development of internal use software.

  • Small businesses don’t have an income tax liability against which to claim the tax credit. Until recently, this hurdle used to make many startups and small businesses ineligible for the tax credit at a time when they most needed support. As part of the PATH Act, Congress enacted provisions allowing certain qualifying startups and new small businesses to claim the tax credit against the employer’s share of Social Security taxes and to calculate the tax credit without regard to alternative minimum tax limitations. 

Now that the R&D tax credit is a permanent part of the tax code and its applicability to small businesses has been expanded, many businesses are taking the time to learn more about the tax credit and find out if they qualify. The calculation of tax credits and the election to claim them can be a complicated process. If you’re wondering whether your business (small or large) may be missing out on these R&D tax credit savings, please contact us at Freed Maxick.

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Freed Maxick CPAs, P.C. is Western and Upstate New York’s largest public accounting firm and a Top 100 firm in the United States. Freed Maxick’s reputation and experience with business and tax issues has made us a go-to firm for businesses and individuals from all over the U.S. and Canada and around the world.

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Agricultural R&D Tax Credits: Which Activities Qualify?

agricultural-activities-qualify-r&dtaxcredit.jpgIf you handle finances and expenses for a commercial farm, you know how technology influences food production, from handling crops or livestock to shipping the product to market, especially with ever-evolving food sciences. As a financial professional of a large farm, you can also appreciate that there are business tax benefits available and you can understand the basics of some of those benefits.

What you may not know is how much the federal Research and Development (R&D) Tax Credit may be available to help lower your income tax bill.

What is the R&D Tax Credit?

The now-permanent R&D credit, enacted in 1981, allows taxpayers who use the hard sciences or technology to create or improve products or processes to save up to 13% of eligible spending on their taxes. Often large companies in the manufacturing, software, high-tech, and pharmaceutical industries claim the credit. Beginning last year, if you meet certain criteria the credit can also be used to offset Alternative Minimum Tax for certain small businesses and start-up businesses can utilize the credit against a portion of their quarterly payroll taxes.

Activities that qualify for the credit must meet the following four criteria: involve new or improved (aka “permitted”) products, processes, or software; be technological in nature; work toward elimination of uncertainty; and involve the process of experimentation.

Qualifying Agricultural R&D Tax Credit Activities

The agricultural industry frequently incurs costs for innovations that can qualify for the R&D credit. Technological advancements like robotics to increase yield or improve production efficiency, or technology to evaluate and test soil, are just a few activities performed by farms and other agricultural businesses that could qualify them for the R&D credit.

Qualifying agricultural activities can include developing new or improved:

  • Technologies and/or processes to improve the harvest lifecycle, from planting to harvest
  • Breeding and/or feeding techniques for livestock
  • Waste reduction or reuse
  • Packaging processes for better managing moisture or temperature
  • Methods or technologies to minimize/eliminate crop damage from disease
  • Technologies to improve the ultimate yield and freshness of product from harvest through transport
  • Product development through cross-breeding
  • Irrigation systems, or soil improvement, plant nutrients or fertilizers

While the above might bring to mind crop production, dairy farming, livestock raising, poultry, and egg production, there are other activities that qualify. These include urban agriculture, grocery delivery, nutritional science and industrial trans-fat elimination, as well as wine and craft beer production, coffee and chocolate production, gluten-free production, meat science and fish farming.

Agriculture may present many opportunities fo R&D tax credits now and in the future. Contact us to explore this area further and to help your farming operation apply for the R&D tax credit.

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R&D Tax Credits and AMT: Chasing Those Blues Away

chasing-amt-blues-away-with-rd-tax-credits.jpg

A recent taxpayer-friendly change in the federal tax law has effectively expanded the number of taxpayers that can use research and development (R&D) tax credits to reduce their income tax liability. Companies that rely on the hard sciences or use technology to create or improve products or processes can reduce federal taxes using R&D tax credits. 

Historically, the rules applicable to general business credits only allowed the use of R&D tax credits to offset regular tax up to the amount of the alternative minimum tax (AMT). In many cases for corporations, shareholders in S corporations, and partners in partnerships, the high-income earners were paying AMT in excess of their regular income tax liability—meaning they could utilize none of the R&D tax credits generated each year (though the tax credits could then be carried back one year, and carried forward up to 20 years).

This limitation on the use of R&D tax credits discouraged companies and individuals subject to AMT from performing an R&D tax credit study, since they weren’t able to utilize the R&D tax credits generated.

New Opportunity to Claim R&D Tax Credits 

The IRS and Congress were aware of this limitation and instituted changes through the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). Effective for tax years beginning after December 31, 2015, “eligible small businesses” and their owners can use R&D tax credits to offset AMT.

The following example demonstrates the impact the PATH Act has had on the ability of a small business owner to utilize R&D tax credits. In this example, the taxpayer is an owner of an S corporation and a Limited Liability Company (LLC) and the taxpayer is actively involved in both entities. The flow through ordinary income and R&D tax credits from the S Corporation are $140,000 and $15,000 respectively. The flow through ordinary income and R&D tax credits from the LLC are $260,000 and $25,000 respectively. The taxpayers’ utilization of R&D tax credits and the resulting tax savings pre and post Path Act are shown below.

  PRE PATH ACT POST PATH ACT
Adjusted Gross Income $540,000 $540,000
Regular Tax $148,000 $148,000
Alternative Minimum Tax $144,000 $144,000
Difference $4,000 $4,000
R&D Tax Credit Generated $40,000 $40,000
R&D Tax Credit Used $4,000 $40,000
Tax Savings   $36,000

Note: AMT limitations continue to apply to any R&D tax credits carried forward from taxable years beginning before 2016.

“Eligible Small Business” Defined

This new tax savings opportunity is available for a non-publicly traded corporation, partnership, or sole proprietorship if the average annual gross receipts for the three-taxable-year period preceding the credit year do not exceed $50 million. Partners, LLC members, and S corporation shareholders must also meet this gross receipts test.

This change in the PATH Act may present your business with an opportunity to re-evaluate your activities to determine qualification for R&D tax credits.

We may be able to quickly tell you if you are an eligible small business that qualifies for R&D tax credits. Have your financial and tech specialist contact us for a no-cost preliminary consultation with a member of our R&D tax credit services team.

Freed Maxick R&D LinkedIn Showcase Page

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See New York’s Top 10 Tax Credits and Cash Incentives for Start-ups

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Here in New York State, the federal and state governments offer certain types of programs that can incentivize companies as they start and grow their business. Our team recently presented this topic to the Genesee County (N.Y.) Chamber of Commerce. 

You can see the video of the full presentation here.

DonWarrant_Startup_video_screen.png

10 Programs and Tax Credits for New York Start-ups to Consider:

While there are many programs and credits available to start-ups, here is our list of the top 10 to consider:

1. The U.S. government provides the federal research tax credit for companies that are innovative and are creating something new to their business or industry, or that are expanding a business into a new area.

2. NYS has designated 10 Innovation Hot Spots in each of the state’s economic development regions. This a tax credit program whereby your company can potentially avoid income taxes and sales taxes for five years.

3. START-UP NY offers new and expanding businesses the opportunity to operate tax-free for 10 years on or near eligible university or college campuses in the state.

4. The Excelsior Jobs program, which provides tax credits for such strategic businesses as high tech, bio-tech, clean-tech and manufacturing that create jobs or make significant capital investments, also applies to innovative companies.

5. The Investment Tax Credit applies if you or your business placed qualified property into service during the tax year. If your application is properly structured, as a new business you can potentially get cash back from NYS for up to five years.

6. The Qualified Emerging Technology Company (QETC) credit is for innovative companies looking to fulfill a key need: investment capital. This particular credit is for the investor who puts money into your company.

7. Companies starting up that are also doing R&D activities can realize a break in paying sales tax.

8. Grants for NYS start-ups come in many varieties: research, educational, energy-efficient improvements to your manufacturing facilities, capital investments. Grants can also come from many sources, such as Empire State Development.

9. With employment-based tax credits, if you’re looking to hire employees, you should be screening those employees for qualification for potential tax credits.

10. If you’re a manufacturer in NYS, you now pay 0% tax. That brings home the importance of looking for tax credits that give you cash back.

Our team is experienced in getting companies of all sizes the most they have coming through federal and New York state tax credits. Contact us to learn more about how we can help.

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The 4-Part Test to Qualify for the R&D Tax Credit

R&D Tax Credit Test - Buffalo CPA Firm

The Research and Development (R&D) Tax Credit, recently made permanent, can be a financial boon as you work to improve cash flow in your business. As we've discussed in previous posts, if you rely on the hard sciences or use technology in your business to create or improve products or processes, you might be able to reduce your federal taxes by a portion of the qualified costs incurred.

A four-part test can help you determine if your company’s activities qualify for the R&D credit.

#1: Permitted Purposes

To qualify for the R&D credit, the activity must relate to a new or improved business component’s function, performance, reliability, quality, or composition. You don’t necessarily have to discover an innovation or advancement that’s new to your industry, only what may be innovative or new to you and your company’s processes or products.

#2: Technological in Nature

The activity performed must fundamentally rely on principles of physical sciences, biological sciences, computer science, or engineering. For example, if you’re in food production, simply adding more salt to your product won’t necessarily qualify—but a method based in hard sciences to enhance your product’s flavor might, as would similar methods designed to keep food fresher longer.

#3: Elimination of Uncertainty

The activity must be intended to discover information to eliminate uncertainty concerning the capability or method for developing or improving a product or process, or the appropriateness of the product design.

#4: Process of Experimentation

The qualifying activities must constitute the process of experimentation involving: simulation; evaluation of alternatives; confirmation of hypotheses through trial and error; testing and/or modeling; or refining or discarding of hypotheses.

Beyond definitions stipulated by the four-part test, examples of activities that might qualify for the credit include those to advance the design of an existing product or process, or those to correct significant design defects or obtain significant cost reductions or enhanced function. Costs of design, construction, and testing of pre-production prototypes and models can also qualify.

For example...

Let’s say you’re a manufacturing firm developing eyewear and you want to increase productivity 10% to 15%. Your costs for doing an evaluation of the raw materials, considering new molds, and determining such factors as the proper heating and cooling temperatures for that raw material and/or molds may qualify for the R&D credit.

Similarly, if you have a product run by software, costs of developing new software to make that product more reliable and more efficient might quality for the credit. If you’re an architectural or engineering firm, costs of researching and incorporating green technology might qualify.

Other activities potentially qualifying for the credit: conceptual formulation, design, and testing of possible product or process alternatives; launch activities involving a new component or process; or design time, tool design and testing, prototype building, and similar activities. Also:

  • Engineering efforts to develop new plant processes or technical redesign of an existing plant layout that result in substantial production gains;
  • Efforts to solve production problems where there was uncertainty as to the best solution; and
  • Design and testing involved in improving the configuration or altering the composition of an existing product or process to increase efficiency or decrease cost.

Some activities do not qualify for the R&D credit, including funded research (for example, funded by a government grant), ordinary testing and inspection, research done outside the U.S., reverse engineering (unless such engineering involves an enhancement, in which case a percentage of your R&D costs may qualify for the credit), adaptation of an existing business component to a particular customer’s requirement or need (for example, adapting a computer program you sell to a particular customer’s requirement), or research with a non-functional focus such as improving or changing style, taste, or cosmetic changes.

Also not qualifying: research after commercial production; management studies or activities; and efficiency or consumer surveys.

Qualified costs include wages paid to employees directly involved with, in direct supervision of, and in direct support of the R&D; materials and supplies used and consumed in the process; and work performed by outside contractors in any of the four parts of the test qualify as long as you retain substantial rights in what the contractors do.

The R&D credit can apply to companies in many industries. We can help you explore the potential of the R&D credit for current and prior open tax years and talk about how your efforts to grow your business could generate cash savings on your federal (and state) tax returns. Contact us to learn more.

R&D Tax Credit Assessment - Freed Maxick

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The Process to Claim Your Possible R&D Tax Credit

Claim_RD_Credit_iStock_43230472-650936-edited.jpgAfter years of being temporarily extended, the Research and Development (R&D) Tax Credit has been made permanent, a policy change that might suggest wider IRS acceptance of true R&D credit claims.

Improving your business often has underpinnings in potential R&D credible activities. Every company wants to grow and differentiate itself – and one of the common denominators for differentiation is improvement in technology, whether it is to create a new or improved product or process. If you rely on the hard sciences or use technology in your business to create or improve products or processes, you might be able to reduce your federal taxes by a portion of the related costs incurred.

How to See if You Qualify for the R&D Credit

First, it’s very helpful to take a critical look at activities that anyone in your company is undertaking to pursue an idea that would make a process more efficient, more streamlined, greener, and so on. Or perhaps you’re testing the feasibility of a new or improved product, looking at overhauling an outdated software, or exploring how to communicate more effectively with your client base through the internet.

Another helpful step is to identify and review those documents that address/substantiate project initiatives and their progress (or even lack of progress—setbacks can actually be a sign that you probably have some credible R&D activity). These documents can include project reports, engineer reports, data updates, feasibility studies, outside contracts, project aspiration memos, or memos that show your company had to change the course of the project or even abandon the project altogether.

From our experience, accumulating the data and information required to support R&D activities can be fairly easy using, for instance, such readily available financial data as payroll records and supply usage compilations that went into any department or project undertaken for an R&D initiative. It might also be wise to investigate the entire history of the project. It's not unusual to discover there are unclaimed R&D credits for prior years as well.

Don’t assume that your potential credit would be too small to be worth your research time.

Even if your company has only one engineer working on a project, that engineer might need two support staffers and a supervisor. (Experienced advisers can help you determine if your applying for the credit is worthwhile.)

Keep your data and documentation simple by focusing on criteria the IRS is looking for when claiming the R&D credit. If the documentation is not there, your R&D credit team can still vet those business improvement ideas for credibility and potential by talking to project leaders or those who have been involved with the ideas on improvement.

Another key to exploring and securing the R&D credit is efficiency and finding the right advisers to guide you through claiming the credit, both when filing the refund claim and in the unlikely event of an IRS audit. Our firm has had remarkable success in retaining the R&D credits claimed if initially challenged by the IRS. We do our homework up front. For example, we have conversations early on that explore succinctly our clients’ potential for claiming and supporting their R&D credible activity.

We also look at a company’s ability to actually generate cash refunds when claiming the credit. In a limited number of cases, the R&D credit may not generate a cash refund upon filing an amended return to claim such credits. In those cases we explore the amount of benefit and when it is expected to be realized before undertaking an R&D credit study. This rarely occurs and the IRS, beginning in 2016, has further expanded the group of companies eligible for receiving a cash benefit from the credit. Beginning this year, certain small businesses with annual revenues under $50 million may qualify to claim the credit against its alternative minimum tax liability. Prior to this companies paying AMT had to carry forward the credits for use in future years. In addition, certain small business with less than $5 million in gross receipts may offset payroll taxes by the R&D credit.

We can help you explore the potential of the R&D credit for current and prior open tax years and talk about how your efforts to grow your business could generate cash savings on your federal (and state) tax returns via the R&D credit. Contact our R&D credit experts today.

R&D Tax Credit Assessment - Freed Maxick

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The Research & Development Credit: Do Any of Your Activities Qualify?

It’s all about the science of innovation, no matter what your business does.

R&D Tax Credit - Buffalo CPA FirmThe Research and Development (R&D) Tax Credit has been in the news a lot lately, especially because it was made a permanent part of the tax code in a long awaited move by Congress. Until that action, the credit was included as part of a group of provisions known as “extenders” that required frequent acts of Congress to keep them available to taxpayers. As a matter of policy this is significant and may suggest a wider acceptance by the IRS of bonafide R&D credit claims. Given this newfound reliability, it’s worth a look to see if any of your business’ activities might qualify for the credit.

In short, costs related to any activity that uses a technical discipline to improve a product or process may qualify for the R&D credit. The law requires that the taxpayer use some form of hard science principle to make throughput faster and/or more efficient and that there be some doubt as to the outcome. The credit is frequently used by taxpayers to offset the costs of research designed to improve their products or certain processes.

In many cases, architectural and engineering firms may overlook activities that could qualify for the credit and reduce their tax obligation. For instance, say a cloud services provider engages an architect and an engineer to design a more energy efficient server farm. Some of their costs related to the project, notably wages, could qualify. Also, if the architect designs and tests new floor plans and wall layouts in order to improve airflow, it may be able to claim the credit for costs related to that work.

In addition, (1) software design costs to improve or allow for third party interfacing and (2) costs associated with developing internal use business software that is highly innovative, may also be eligible for the credit.

Architectural/engineering/construction costs that should be evaluated for potential R&D credit benefits include:

  • Green building design
  • Energy efficiency innovation
  • Structural engineering
  • Experimenting with materials
  • HVAC/plumbing/electrical system design for increased efficiencies
  • High-tech equipment/manufacturing installation and design improvements

R&D Credit for Manufacturers - Buffalo CPA If your business engages in activities like these, you should discuss your eligibility for the R&D credit with a Freed Maxick professional familiar with its requirements. As long as the research is based on hard science and the outcome is not certain, you may qualify for significant tax savings.

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New York State Solar Power on The Rise!


By: Jeffery T. Zawada, CPA

A few years ago, talk of harnessing energy for commercial or residential sustainability didn’t seem practical. With no replicable models for doing community based energy projects or investments, local development didn’t seem thinkable. But with recent opportunities in community solar, crowdfunding and R&D, there has been a surge in commercial and residential development and investment.

What are other States Doing?

In 2012, California-based company, Solar Mosaic, launched their first community solar investment project, allowing 51 California investors to earn 6.38% returns for investing in a 47 kilowatt solar array on the roof of the Youth Partnership in Oakland. Their subsequent 235 KW project ups the ante; opening up to regular folks in California and New York (and accredited investors in all 50 states). 

The Mosaic model turns community solar into a simple investment, letting prospective investors select a particular Mosaic project to invest in, with significantly higher returns than parking money in a U.S. Treasury or savings account.  For now, it’s limited to broad participation in just two states, New York and California. This is just one example of how solar companies are expanding the reach of solar energy output.

What is New York Doing?
Governor Cuomo, in his 2013 State of the State Address, announced the Charge New York Program; making NYS part of a clean tech economy. Due to the large amount of money NY is investing in panel installations for home and business; various companies in New York offer incentives and tax credits for both residential and commercial businesses looking to recoup some of the costs.

Companies like New York State Energy Research and Development Authority (NYSERDA) offer many state incentives and credits for commercial and residential builds.

  • NYSERDA Solar PV Program Incentives- Saves 40-70% off the purchase cost and install on a solar electric system by combining this program with other New York Energy SMART programs;

  • The NYSERDA Solar Thermal Program Incentive offers both residential and commercial 15-20% off the installed cost of an ST system.

On the state and federal level, NY offers tax credits and exemptions for various solar installations. Some of these include:

  • The NYS Solar Credit:  Is a 25% credit of the total installation cost. You have to file tax form IT-255 to receive the credit. Be mindful; there’s a cap of $5,000 on this. If you are installing a 5kw system, you’ll be due back $5,000 from the state.

  • The federal solar tax credit: Allows for a 30% solar installation tax credit. This credit differs slightly from NY state credits. You need to calculate your expenses after rebates. For example- on a hypothetical 5kw system priced at $25,000, you can expect back $4,875 (this is by taking the $25,000, subtracting the state solar power rebate of $8,750 to arrive at $16,250. Then take your 30% and you’ll get $4,875).

  • The NYS solar tax exemption: for the addition of solar panels to your home; giving an exemption from property tax increases, even though you’ll be adding roughly 20 times your annual electricity bill savings to your property value.

Still unsure what renewable energy credits or incentives you qualify for? Freed Maxick can help you figure it out. Contact us to connect with our experts, or call us at 716-847-2651.

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