Ventures Roundup: How Startups Can Get Up to $1.25M with the R&D Tax Credit

When filing taxes, startups often shy away from claiming the federal research and development credit because they don’t think they will qualify, says Louis Guay, principal of R&D tax and cost segregation services at Kaufman Rossin.

Sometimes, the young companies’ accountants don’t know about the credit, which can potentially award startups $250,000 a year for five years.

Guay offered additional insights as to how startups can secure the extra capital:

What do startups need to be eligible for the credit?

In general, startups that develop new products or technologies are likely to meet the requirements. Tax specialists can review the requirements through interviews with the startups’ technical employees. The criteria to be eligible to apply the credit against payroll taxes are the following:

• The startup has revenue of less than $5 million in the year for which the credit is claimed.
• The startup did not have any form or revenue for any year prior to the period of five years ending with the credit year. To qualify for the 2019 payroll credit, a startup cannot have any revenue in 2015 or earlier.

What’s the drawback to this credit?

The only “drawback” is that eligibility to the R&D credit is a technical matter that generally requires the involvement of tax specialists. It also requires the startup to keep at least a minimum of documentation supporting its activities and its eligibility.

Do you know of startups that have benefited from this credit?

In the last two years, we have helped several startups and early-stage companies in South Florida in capturing the R&D credit.

Is this better than other funding options?

It’s a complementary one, in a way. It’s there to incentivize businesses to invest in R&D, and that helps startups mitigating the risks that come with developing new or improved products and technologies.