Top 5 Ways That an R&D Tax Credit Software Can Help With R&D Tax Credit Claims

Is your company receiving the total amount of research and development tax credits to which it is entitled? Most likely not. Only 38% of CFOs declared that they were sure their companies were making the most of available R&D tax credits for investments.

One of the reasons may be the difficult process many businesses have to go through to apply for these credits and the trouble they have getting documentation to back up their claims. 

When combined with specialized knowledge, technology can be of assistance. The following are five ways that using cloud-based R&D Tax Credit Software for managing projects, online collaboration, data analysis, and reporting can aid in gaining access to additional R&D credits, optimizing the results of regulatory reviews, and saving employee time.

Find and make use of additional data

It is essential to correctly distinguish qualifying projects and find data and documentation to support them to be eligible for the research and development tax credits available at the state, federal, and international levels.

However, this information is frequently scattered across incompatible systems, which might also belong in various tax jurisdictions, including countries outside the United States. Data might also be stored in systems (like software for tracking agile development projects, for example) to which the tax department does not have access.  

An R&D Tax Credit software can be a big help in locating data and consolidating it. It is able to create a unified view of the data and display how each piece of information relates to the myriad of state, federal, and international regulations. You can use this information to help craft a unified strategy for R&D tax credits across the globe.

Optimize the level of collaboration across international borders

Suppose your company is doing business in more than one jurisdiction. In that case, you might have separate tax teams to handle your operations’ federal, state, and global aspects in addition to uniquely performing data collection and analysis.

It’s possible that they aren’t communicating effectively or working together seamlessly. This could result in duplicated efforts on the part of your tax teams as they analyze the same data or make applications for comparable incentives using different approaches. It is also possible that opportunities will be lost as a result. 

In addition to assisting in the collection, standardization, and analysis of data in light of a variety of state, federal, and international laws, software that is hosted in the cloud can also support remote collaboration that is both accessible and secure, allowing teams to more effectively work together.

It is also able to provide a unified record of the initiatives undertaken by various teams, ensuring that a team operating in one jurisdiction does not repeat work carried out in another.

Take some work pressure off your workers

The minds of workers are often the only place where key information can be found. You might need to survey individuals working in various departments involved in innovation efforts, including business, IT, engineering, marketing, operations, and digital transformation teams.

Questions may need to be asked about the specific tasks performed by employees and their technical difficulties, the contributions of different teams and contractors, the records of the supplies used during the R&D process, and more.

In larger companies, you might have to communicate with hundreds of workers, all of whom are probably preoccupied with their primary responsibilities. 

An R&D Tax Credit software that is specifically designed to handle the complexities of R&D can help identify the appropriate personnel, draft the appropriate survey questions, and keep a record of who has already answered what based on data that has already been gathered as well as detailed databases of state, federal, and international laws.

This can lessen the chance of asking the same questions to the wrong people multiple times. It can also reduce the workload of tax employees by automating a substantial portion of the surveying process and other accompanying analyses.

 Supports flexible strategy

The tax legislation and guidelines pertaining to R&D are continuously being revised. Most likely, your innovation portfolio will be the same. In a perfect world, the tax department could list all of the potential credits for which the various possible investments could be eligible.

There is a possibility that R&D tax credits could cover a sizable portion of the cost of such investments. In certain instances, these credits could make financially unfeasible projects financially feasible, allowing a tax-forward strategy to be the driving force behind a company’s digital and cloud strategic initiatives. 

An evolving and future-focused strategy for claiming R&D tax credits may benefit from utilizing cloud-based computing systems that are sufficiently flexible and provide continuous access to data and analysis. 

When you have real-time access to data in a single dashboard that links this data to the most recent tax authority guidance, you can quickly adjust your strategy and give more precise projections of the potential tax value. 

These tools can also serve as a space for planning a more comprehensive incentive strategy that considers ESG factors.

Prepared for any controversies

The environment for controversy has gotten trickier. For instance, the Internal Revenue Service (IRS) published in the latter half of 2021 Chief Counsel Memorandum 20214101F, which outlined stringent new requirements for the specificity and documentation of R&D tax credit refund claims.

The problem is that the supporting documents could be stored in a variety of different systems and even in different countries in some cases. There is a possibility that you do not have simple access to this information or are even unaware of where to look for it. 

Using specialized software designed for R&D tax credits can assist in not only claiming the appropriate credits but also securing the claims.

These tools can simplify and partially automate the process of providing evidence in support of claims by assisting in the collection, labeling, and organization of supporting documentation and presenting it in a centralized location.

The end result may be improved regulatory review outcomes in addition to time savings for the tax team (and possibly other key employees as well).

Final Thought

The ability of cloud-based tax credit project management, collaboration, analysis, and reporting software to identify and secure more R&D tax credits, all while reducing the amount of time and effort required to do so, is part of a larger trend that sees tax professionals becoming leaders in the application of technology. This pattern is observable in the tech-forward mentality that many tax authorities have adopted.

Because no piece of software or piece of hardware can take the place of knowledgeable and dedicated tax professionals, taxes will never stop being about people.

Tax, on the other hand, can increasingly serve as both a model and a source of funding for individuals throughout the organization, enabling them to carry out both superior and more interesting work, as well as be more collaborative.

Heron Nelson

Heron is a business blogger with a focus on personal finance and wealth management. With over 7 years of experience writing about financial topics, Heron has established herself as a trusted voice in the personal finance space. She has a deep understanding of financial concepts and strategies, and is able to explain them in a relatable and actionable way for her readers.