Businesses don’t become unicorns by sitting on the sidelines or riding the tides of markets.
Research from McKinsey finds that companies that embrace an innovative culture—where experimentation is rewarded and innovation is championed—had twice the rate of success executing digital initiatives like software transformations.
To that end, businesses that embraced new technologies—namely, AI-powered tools—were 4.5 times more likely to characterize their products and services as industry-leading.
Most telling of all? These innovative companies were also investing twice as much into research and development (R&D).
And by all accounts, these R&D investments are paying off.
Billions in tax credits waiting to be accessed
Across North America, there are more than $20 billion in R&D tax credits available to help innovative companies retain a share of their investments into research and development and stretch their innovation capital further.
The beauty of R&D tax credits is that they allow businesses to recoup a share of the investments that they’re already making to drive innovation.
This enables finance teams to streamline their EBITDA—on the one hand—while unlocking a “virtuous cycle” of R&D where investments can be continuously compounded.
An underutilized program in the US
In the United States, for instance, businesses can claim up to $500,000 each year that can be used to offset tax liabilities (ie. payroll, income) as part of the IRC Section 41 tax credit. That means up to $500,000 in liquid assets can actually stay in your business’ bank account each year, allowing you to not just fund more innovation, but actually lower your total taxable income.
What’s so vexing about this is that billions of dollars in R&D tax credits never get dispersed each year because businesses either don’t know about them, or struggle when navigating the IRS’s often difficult claim process.
A tradition of innovation in Canada
Canadian founders benefit from a far more entrenched tradition of innovation tax credits to fuel R&D. The country’s banner Scientific Research & Experimental Development (SR&ED) program, for instance, serves R&D-focused businesses of all sizes and across industries, and has provided almost $4 billion in support to more than 22,000 innovative Canadian businesses in 2021 alone.
But even the Canadian government recognizes that tapping into SR&ED funding is not an easy or intuitive process.
To that end, a lot of the approval criteria for both SR&ED and the Section 41 tax credits is relatively subjective: Despite both governments offering a rundown of qualifying criteria for eligible activities, communicating “unique innovation” to both the IRS and CRA calls for expertise that most in-house R&D teams—and even financial leads—can’t readily navigate.
That’s because drafting these claims calls on the robust skillsets of both seasoned technologists AND tax policy experts.
Maximizing R&D Tax Claim Eligibility
To ensure that your business’ research and development initiatives are structured to maximize your access to innovation capital, here are some actionable steps you can take today without overextending either your finance or technical talent.
Step 1: Drive better business and technical visibility
The top task for financial leaders to gain a better understanding of tax credit eligibility is to establish better alignment between the technical and financial arms of the business.
That said, this doesn’t mean blowing up your current workflows.
In fact, teams should do their best not to interfere with the progress of R&D by pulling their researchers and engineers away from their projects to focus on tax credits.
Instead, financial teams should seek out solutions like Boast that integrate the project tracking, payroll and financial reporting systems that respective teams already use to monitor their day-to-day progress. By leveraging AI and human expertise, Boast actively and passively ties actions to material and financial outcomes, providing an ongoing system of intelligence for both optimizing R&D strategies and flagging for credit-worthy activities.
Step 2: Research all funding opportunities
While tax credits offer an opportunity to re-capture investments you’re already making into product development, there are a wealth of grant programs available that similarly provide non-dilutive innovation capital to worthy innovation projects. However, it’s important to note that leveraging some of these programs to fund your R&D will disqualify you from accessing some R&D tax credits. Finance teams are still wise to pursue a diverse array of capital sources to drive innovation (opposed to “putting all their eggs in one [investment] basket,” so to speak).
Step 3: Maintain good records:
While it’s not incumbent on finance teams to be managing the workflow systems of their counterparts in product development (and vice versa), both areas of the business should be diligent in keeping good records of their respective progress throughout the year.
Both the IRS and the CRA recommend workflow tracking—ie. Timesheets, project plans—as table stakes. Abiding by these best practices demonstrates to government bodies that due diligence is being conducted across your organization (which, in turn, may enhance confidence in your organization among agency officials—or even auditors).
Down the line? Having good records (and validation from the government in the form of successful tax credit claims) will also make your business more attractive to investors.
Step 4: File on time
This should be a no-brainer, but the more deadline-oriented you can be in filing for R&D tax credits, the better positioned you are to unlock that “virtuous cycle” of investment—both for your current and future claims.
Simply put, stick to deadlines for filing R&D tax credit claims and, depending on the country, potentially retroactively claiming credits up to three years after expenses were incurred.
Highest R&D tax claim with least effort
With Boast AI, you’re not just filing a claim; you’re ensuring the biggest possible return with the least effort.
With decades of human expertise in navigating tax code—while also being a team of founders and technologists in our own right—combined with a platform that synchronizes key financial, project workflow and payroll data into a single system of proof, Boast leaves no stone unturned in digging deeper to uncover all of your credit-worthy activities.
In fact, businesses that work with Boast to capture their R&D tax credit claim on average enjoy 20 percent higher returns than those who either work with competitors or attempt claiming on their own.
Boast helps you easily capture more of your eligible R&D tax credits with our scalable, AI-driven software, which is flexible enough to accept technical data from virtually any system. This ensures every qualifying activity is captured and time is attributed without missing any detail.
From there, our technology helps us identify eligible work and guarantees that we find every single hour and cost that went towards those initiatives. Our team of industry experts then steps in, conducting a thorough analysis of your projects and identifying every qualifying project throughout the year.
Our unique Boast method, shaped by over a decade of claim experience, is designed to develop the most effective R&D tax strategy that aligns with your specific needs.
Talk to an expert on our team today to learn how we can maximize your access to critical innovation capital.
