Here we are at the beginning of the new year, when W-2s are distributed and people and businesses alike start thinking about filing taxes for 2019.
Like individuals, businesses will look for every savings possible when giving the government an accurate and true statement of their income last year.
According to tax experts, one of the largest tax incentives available to U.S. companies is also available to AV integrators.
What is the R&D Tax Credit?
According to Tracy Lustyan, a managing director with national tax consulting firm alliantgroup, that credit is the Research & Development tax credit that’s been available for companies since 1981. It was first introduced by U.S. Congress to prevent software and technology jobs from going offshore.
It’s gone through a bevy of changes over the years, including in 2003 with the American Jobs Creation Act.
In 2016, the law implementing the credit was changed again, including making it a permanent provision and removing limitations, specifically the Alternative Tax Minimum, thus making the provision eligible to businesses with less than $50 million in gross receipts.
“That really leveled the playing field between small U.S. businesses and larger competitors,” Lustyan says.
In 2017, as a result of the Tax Cuts and Jobs Act, the credit became even more accessible to U.S. companies when the law removed corporate AMT and loosened individual AMT restrictions.
“The whole idea is to help our businesses be globally competitive,” Lustyan says. “The problem is, very few businesses understand that they qualify.”
How do you qualify?
The main drivers of this tax credit are U.S. wages, Lustyan said.
More specifically, according to alliantgroup, businesses may qualify if they:
- Develop or design new products or processes
- Enhance existing products or processes
- Develop or improve upon existing prototypes and software
For AV integrators, they can leverage their technicians, field sales representatives and project managers to drive the credit, Lustyan says.
If companies documented their prior R&D activities, they can claim the credit for both current and prior tax years, but Lustyan notes that companies do run the risk of losing the tax credits for prior years forever if they don’t act quickly.
To claim it, the company or taxpayer must evaluate and document their research activities to establish the amount of qualified research expenses paid for each qualified research activity, according to alliantgroup.
If you estimate your research expenses, you must provide a factual basis for those assumptions.
Per alliantgroup, some examples of documentation that can help you include:
- Payroll records
- General ledger expense detail
- Project lists
- Project notes
- Other documents a company produces just by doing business
How does it help AV integrators?
According to Lustyan, the firm has helped deliver about $100 million to NSCA members via the Research and Development Tax Credit. Some firms have reported saving six figures via the credit, she says.
“If someone is not taking advantage of it, you’re not only putting your company at a competitive disadvantage in your own industry, but you’re putting it at a competitive disadvantage nationally,” Lustyan says.
Integrators are taking products from manufacturers like Crestron, LG and Panasonic, determining the needs of their clients and then integrating that within a low voltage system to create audiovisual installations, fire safety and alarm systems.
That technology and hardware is improved upon every year, which requires constant training on new technology.
That is compounded with the industry’s problem attracting and retaining talented tech workers.
“What our integrators tell us is this helps them pay more so they have a better chance of retaining that talent,” Lustyan says. “It helps them invest in training and development to stay on top of cutting edge technology.”