What are Tax Credits?
Well this is obviously a scam… If the IRS wanted to pay me, they would have already… $50K? Yea, right!
Most people hear that we can uncover thousands of dollars for their business and immediately assume it’s too good to be true. (See: the comments section of every ad we’ve ever run.) And we get it! Tax credits do sound a little far-fetched at first. That said, ask any of the 2,000+ businesses we’ve helped claim over $100M in the last year and they’ll tell you these credits are very much worth your time.
Whether you’re just starting out or topping the Fortune 500 list, R&D tax credits will likely benefit your business. This program, created by the IRS in 1981 and permanently extended in 2015, is designed to help any business that’s innovating in their field. While the target audience for these credits are typically technology-based, they can apply to almost any industry.
To qualify for R&D tax credits, companies must pass the IRS’s four-part test to determine whether their research and development activities fit the bill. This test can seem complicated, but you can review the basics here. Alternatively, it may be easier to lay out a list of things that don’t qualify.
The following activities are ineligible for R&D tax credit qualification:
- Advertising or promotions
- Conducting research that adapts an existing product or process to a particular customer’s need
- Copying an existing product or process
- Research relating to certain internal-use computer software
- Research conducted outside the United States, Puerto Rico, or a U.S. territory
- Research in the social sciences, arts, or humanities
- Research funded by another person (or governmental entity) or acquisition of another’s patent, model, production or process
- Research conducted after beginning commercial production
- Testing or inspection of materials or products for quality control
Many businesses disqualify themselves from these programs, thinking they don’t fit the bill because they aren’t building an app or trying to get to space. But before you doubt whether your business qualifies, let us take a look under the hood and see how much your business truly qualifies for.
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Getting started with MainStreet
Onboarding with MainStreet takes about 20 minutes to complete, and it’s completely free to see how much you’re owed. You can either use our self-serve dashboard or hop on a quick call with a member of our team to get started.
First, we’ll have you answer a quick survey, giving us some insight into your qualifying activities. From there, you’ll plug your payroll software into our dashboard, enabling us to scan for hundreds of credits and match you with those that fit your business.
Why payroll? Tax credits are typically used to offset your payroll taxes, meaning you can qualify even if you’re not profitable yet. There are a few other parameters that your company must meet to use these credits to offset your payroll. You should:
- Have gross receipts going back five years or less
- Accumulated less than $5M in gross receipts in the year(s) you elect the credit
- Conduct qualifying research activities (see: the IRS’s four-part test)
- Have payroll expenses that you owe but have yet to pay, like employee wages, withholdings, and expenses like your share of Social Security and Medicare taxes
These terms may seem complicated, which is why we’ll take on all of this heavy-lifting for you. All you need to do is complete the onboarding survey and payroll plugin, and we take care of the rest.
Once we determine your credit estimate, you can decide whether or not to move forward with MainStreet services. If you opt in, we’ll start processing your claim and ensuring we have all the necessary information to apply for this credit on your behalf. We take a small cut, 20% of your credit estimate, paid over 12 months.
What to expect come tax season
Ah, tax season. Everyone’s favorite time of year… right? Luckily, we’ll take on all the paperwork surrounding your tax credit claim and deliver it to you to file alongside your company’s annual tax return.
All we need from you is a classification of your yearly expenses so we can match them with our initial estimate. We’ll send you an “Expense Classification” survey at the start of the new year. This survey should take about an hour to complete and asks for confirmation of your R&D activities and the employees who performed them. It’s essential that you complete this survey before filing your tax return, so we can do your tax credit claim paperwork ahead of time.
Once you submit your Expense Classification, we’ll provide an in-depth Qualified Research Expenses (QRE) summary, giving you insight into how we reached your final credit amount. This breaks down your qualified expenses – things like labor, supply, and contract research. We’ll also provide you with a completed Form 6765. This is the form you must file along with your annual tax return in order to properly claim your tax credit. Once you receive these materials from us, you’re ready to file!
Tax credits can be daunting. With MainStreet, we make it easy to qualify and claim thousands of dollars already set aside for your business.