Take Advantage of the R&D Tax Credits Available to Your Business

At TriNet’s 2023 Small Business Administration's National Small Business Week Summit, Tyrone Houston, TriNet’s Executive Director of Customer Relations Management sits down with Monika Diehl, Divisional Vice President, Tax, at Clarus R+D, to discuss tax credits for R&D investments. Monika explains the history, how to think about qualification and how to get started taking advantage of the tax credit.

Please note that these sessions are for educational purposes only. TriNet provides HR guidance and best practices. TriNet does not provide legal, tax or accounting advice. The materials in these sessions and the products, advice and opinions expressed in these sessions are solely those prepared by the presenter and not necessarily those of TriNet.

Tyrone Houston:
Thanks everyone for joining. Welcome to this version of TriNet's R&D Tax Credit webinar. I'm joined, as you just heard, by Monika from Clarus, and we're really excited to be here in front of you during National Small Business Week and TriNet's Summit to explain to you the details, the history, all sorts of cool stuff about R&D tax credits.

Okay. So with that, I wanna get past that disclaimer ‘cause you just heard it. You've been introduced to us and I wanna show you the agenda. Now while you're reading through this, most of this is gonna be covered by Monika, but I want to plant a couple seeds that I want to make sure you're thinking about as we go through the history of the details, qualification, quantification and all those good bits of information.

One is throughout this webinar, after, at any point in time you have access to a 30-minute consultation, free of charge with our Clarus tax experts. Now you're gonna see just what level of expertise we're dealing with here, but I wanted to let you know that upfront because as you're learning and thinking and seeing what is potentially available to you via the R&D Tax Credit program, you're gonna want to take some of the things you hear, some of the things you learned today and zoom in on your business.

It's a really cool thing that Clarus offers. Really excited for each of you to have access to that. The other is, I just, I wanna pause it right now that we all stop and take a breath and think about research and development expenses, research and development costs or investments broader than what we're used to.

Now some of you I know probably know this program and everything I'm getting ready to say might be a bit redundant, but for a lot of you, you're thinking of R&D is maybe like where I used to work at Lockheed Martin—airplanes, rockets, missiles, right? And that is research and development. But the government, the United States government defines research and development a bit broader than that.

So I wanna make sure you're not selling yourself short with respect to what R&D investments are. Monika's gonna get into that and some pretty cool stuff. The other thing, just as a heads up, we're gonna get in the meat. We are gonna show you and teach you what this program's about, the history, how to think about qualification. So I just want you to be ready for it. So with that, let's step into setting the stage. All right.

Now, a lot of you know TriNet, you know the PEO model. Some of you may or may not know Clarus. Some of you may know Clarus and don't know TriNet. So I just wanna set the stage right. We, TriNet professional employer organization (PEO), we offer the HR access to large company benefits, payroll services, workers’ comp, all sitting on a nice technology platform in a beautiful mobile app. Well, a year and a half ago or so, we listen to our customers and we're thinking about other services that we could offer, and one of those services, especially coming out of the pandemic, when you think about things like the ERTC or other tax credit programs, one of the things TriNet never did was offer the services to qualify customers.

Right? So we would have customers come to us and say, "Hey, am I eligible?" And we'd say, "Don't know. Go get with your CPA." Well, we found this company in Clarus and these experts at Clarus to join forces and be able to offer that service. And you can see here on the right, pretty powerful partnership. And one of the things we're doing is making sure that our customers and our prospects understand the access they have to these Clarus experts.

So that's the stage. We're one company now, and we're working together to make sure that customers and prospects understand the breadth of services and not just TriNet legacy PEO offer, but also what this partnership with Clarus can help you do, getting access to these R&D tax credits. And what exactly do we mean when we say access to R&D tax credits?

So every year, the United States government looks to incent United States businesses by giving credits back for their R&D research and development expenses. All right, so if you improve a product, if you improve a service, if you build your business by making research and development investments, then there is a potential opportunity that you have access to alleviate some of those investments via the R&D tax credit program.

It is as simple as that. We're gonna get into some of those details. I don't mean simple as easy, I just mean we are incenting. We the U.S. government, our tax dollars are incenting U.S. businesses to make investments in their products and services to the tune of 92 billion in 2019, just south of 100 billion.

But what's most important here isn't the amount that is allocated by the government. It's the amount that wasn't claimed by small and medium businesses. And that's the opportunity here for you. And what you need to be thinking about, 30 billion were claimed in 2019 leaving 60 billion on the table. That 60 billion is a number that if you're investing in your products and services, you're improving your business.

You potentially have access to that $60 billion to alleviate some of those costs. Why is that number so big? Why is that $60 billion? We find three primary drivers of under-utilization. One is, people just don't know about it. Fair enough. That's part of why we're here doing these webinars. The other is the assumption of ineligibility, and this goes back to broadening our definition of what R&D means.

A lot of folks think they're just not gonna be able to qualify for it. Fair enough. Another reason we're doing the webinar. Last, but certainly not least, is resource constraints. Right? Who's gonna do it? How much does it cost? All of the things that we know you, as small business owners, think about as you're sort of looking out, managing your business, but also trying to figure out, you know—do I have time, do I have money to go after this particular program? Now the cool thing about all these three buckets of under-utilization is they're all solvable, and they're all solvable by our friends at Clarus R&D. So I'm gonna introduce Monika now ‘cause this is where we get into the meat.

This is the cool stuff, but I wanna leave you with this. When you're thinking about Clarus and when you're thinking about your qualification, what Clarus brings to the table, I call it trifecta. They've got the experts, proven experts. They've got technology platform that enables the calculation, the qualification and then they have a study.

You'll hear us talk about the study they produce and that trifecta is what ends up going in front of the IRS as a defensible package. And you can see here, $235 million of credits identified, none of which have been disallowed. Have to be careful here, caveat, the IRS can always come back, audit and disallow something in the future. But I can tell you that's a really good track record of a government program and the defensibility of those credits being allowed. So with that, I'm gonna let Monika take it from here, Monika.

Monika Diehl:
Thanks, Tyrone. Well, what I'm gonna do is, I'm gonna go ahead and start talking about some of the basics of the R&D credit.

So the slide we're looking at now tells you a little bit about the history of the R&D credit. What is the research and development tax credit? What is the purpose of it? And the whole purpose of the research and development tax credit, which started back in the early 1980s was to encourage companies to invest in new products and new technology.

The idea behind this was investing in new products. Investing in new technology is gonna help businesses to grow, help us to create new jobs, help us to create new technical jobs, high paying jobs, and have that activity happening within the U.S. Now, the problem with doing this type of work is research and development work can be expensive and it is risky.

When you're talking about creating new products, you are talking about, first of all—Am I capable of developing this new product? Can I actually accomplish what I'm setting out to do? And if I do, is anybody gonna buy it? So there's some risk and there is a lot of expense associated with research and development work.

And so the government created this tax incentive to encourage businesses to take on those risks, to go ahead and develop these new products and invest in technology and for a long time, this was really great for a lot of larger businesses. A lot of large companies took advantage of this credit.

They were big, profitable companies that were paying a lot of income tax and they were investing a lot in research and development. So this was a nice deal for them. They were getting rewarded for the development work that they were doing, the investments that they were making through tax credit, so they calculated research and development tax credits that could then reduce their tax liabilities, which was fantastic for these large companies. The problem was small companies were kind of left out, especially early-stage companies and startup companies. And the reason for that is early-stage companies, as I'm sure a lot of you are familiar with, are typically in those earliest years, spending a lot more than they're taking in. They're trying to set up their company. They're trying to establish their company. They're trying to create their products. They're developing those new products. They're doing exactly the type of work that the research and development tax credit was designed to encourage, but they didn't have any income tax liability yet.

They weren't profitable, and so, going through an effort of working with a consultant to calculate a research and development tax credit was not terribly meaningful for them because they didn't have the ability to actually realize a cash benefit for that credit. And so what ended up happening is that a lot of these smaller companies who were doing the work that the credit was designed to encourage, were kind of missing out.

They didn't have the ability to monetize these credits, and so it was something that they kind of put on hold until down the road when they were profitable and made a little bit more sense. And so there was a change in the law in 2015 and this was the PATH Act. The PATH Act was passed in 2015 and this did a few things.

For one thing, it made the R&D tax credit a permanent part of the tax code. So up until 2015, the R&D credit was one of the benefits that was a part of the tax extenders package that you would hear about needing to be renewed every year. It expired every year. It needed to be renewed every year.

It was, in fact, renewed for over 30 years consistently and so the government actually decided, let's make this a permanent part of the tax code, then we don't have to talk about it every year. But what was difficult is that businesses who were trying to plan for the benefits that they might receive for doing this type of work, for doing R&D work, always had that question in the back of their mind.

Is this benefit going to be there? I think it's gonna be there, it's been there for 20 consecutive years, but I don't know, it still could potentially expire this year and not be a part of the planning that I'm doing for next year. And so, I'm making these investments. I'm kind of counting on this credit being there, but I'm not sure—there's always that question. Now it's a permanent part of the tax code.

And the other thing that was a huge benefit for early-stage companies and startup companies in particular is the payroll tax benefit. And so what happened is the research and development tax credit, as it's always been in the tax code, was now available to early-stage companies, as earliest stage companies that were probably not profitable to be used against their payroll taxes.

And the reason that matters is because the companies didn't have any income tax liability yet. They couldn't monetize the credit against any actual tax liability, but now they had the ability to make an election, which means you check a box on your tax return and you can use it against the company's payroll taxes.

So they may not have any income tax liability, but if they have employees, they are paying payroll taxes with every payroll run. And so this was a huge benefit and gave those companies the ability to actually monetize the credits currently. And so what ended up happening now is that this became a huge benefit for these early-stage companies and we can really start to explore the different types of industries that the credit might be available for.

Tyrone mentioned a little bit earlier that we wanna think about this being pretty broadly written, so the R&D credit, as we're thinking about it, I think most people are saying research and development, so I'm thinking about businesses that have scientists and they have people working in lab coats with test tubes and beakers, and those are the people that are gonna get a research and development tax credit, right? Because they're developing products, pharmaceuticals, right? That makes sense. They're gonna be developing new drugs, new products. They definitely qualify for an R&D credit, which they do. You know, some of these typical science industries that you'll see on this list are things like the pharmaceuticals, aerospace, medical devices.

Of course, those companies do qualify for research and development credits, but we need to think about other products as well. It's not just those traditionally scientific industries. Companies that develop consumer products, maybe they are developing a new version of their product that is stronger or more effective; that would qualify for the R&D credit.

The development of that product, the testing and iterations of development would qualify. Let's think about something like cosmetics. We've worked with a company that had a skincare line. Anytime they were developing new products for that skincare line or developing a new formula for one of their existing products, that was qualifying activity for the credit.

Even in the food and beverage industry, there are opportunities to take in R&D credit. We've worked with craft breweries. Craft breweries that are creating those new recipes, those new formulas of their products, that is an R&D process. They have to go through iterations of development. They're testing, they're using up raw materials and ingredients in order to go through those test batches, and they're using people's time to go through that development process.

And that is actually qualifying activity for the R&D credit as well. So we wanna think really broadly here. As Tyrone mentioned, we wanna think pretty broadly because there's a lot of different types of industries where, if the company is developing a product, they're developing a process, they're going to be eligible for the credit.

So what's the impact of these changes? I mean, the one thing is for the early-stage companies, for early companies that are not yet profitable, they now have the ability to monetize the credit. They have a new cash benefit for an expense they actually have to pay that is available to them and they are actually being rewarded just like the big companies for the efforts that they're putting into their R&D and the spend and the risks that they're taking.

The credit is now here to stay. It's a permanent part of the tax code, so we don't have to wonder if that's going to expire and who's gonna have to work with who to get it past for the next year. It's just there. The R&D credit is there. We can plan for it every year. The credit is generally gonna come up to be about 10% of eligible spend.

So when we think about your qualifying activities and the cost related to those activities, the credit generally comes up to be about 10% of what you're spending on that R&D and that development process. And the credit can be claimed every year. And so one thing that you wanna think about there is it's not just the first year that a company develops a new product that they have an R&D process that would be eligible for the credit.

Improving upon existing products also qualifies for the credit. Continuing to make enhancements and improvements along the way are eligible for the R&D credit as well. So this is something that can become a part of a company's regular tax filing process every year. It's a benefit that, you know, they can be eligible for every year because they do continue to improve their products. They continue to improve on what their company is selling and, you know, to provide more benefits to their customers. And that is something that should be rewarded.

That investment, that time that's going into that can be rewarded every year. So where a company is choosing to not do that because they're concerned about the effort or the time involved, there is some effort and time involved, but you're really leaving money on the table. And so it's just really something we'd encourage companies to explore.

And specifically for those earliest stage companies, startups, you now have a new form of non-diluted capital that is available to you that didn't exist before. So when we're thinking about who's eligible for the credit, who's a qualifying startup, we keep referring to that for that payroll tax election.

A qualifying startup is gonna be a company that is defined as a qualifying small business by the IRS and that's a company that is within their first five years of having any gross receipts, and they have less than 5 million in gross receipts in the credit year. And so in most cases, this is really looking at the earliest years of the company, those first years where they're trying to develop their product and they're really trying to get started is what we're gonna be looking at.

The gross receipts. What does that mean? That does include revenue and sales type revenue of the company, but can include other types of income as well, like interests and dividends and things like that. So it's generally gonna be the earliest years of the company that a business is eligible for that payroll tax credit.

But what's important to know is that when a company, even a small business and early-stage company that's just starting to become profitable, maybe they still have some accumulated losses, those net operating losses that they know will offset any taxable income for at least the next few years, where they're starting to become profitable, what we wanna think about is it may still make sense to claim an R&D credit.

And the reason for that is when you kind of outgrow the payroll tax credit, when you're no longer eligible, you're not that early a stage company that's eligible for the payroll credit you have the ability to use the credit, to claim the income tax credit, and the credit has a 20-year carryover period. So that means you have up to 20 years to use those credits before there's any risk of it expiring.

Okay, so now we're gonna start to get into some of the details. So we're talking about—are you developing new products? Are you improving products? What does that actually mean from a documentation perspective? What is the IRS gonna look for if I claim an R&D credit and they wanna know—how do I know that I'm eligible for it?

And what are the actual details that we need to kind of define and document, the boxes we need to be able to check? So we're gonna start with the four-part test. The four-part test is the test to actually outline in the tax code. And this tells us whether we have qualifying activity for the credit. Qualifying projects or qualifying work for the R&D credit needs to meet all the requirements of the four-part test.

So the first part says that the work needs to be for permitted purpose. That means we're creating something new or we're improving an existing product and we wanna be improving the function, performance, reliability or quality of that product. It can be a product, a process, a technique. It can be software that you're developing.

Those are the types of products and activities that are gonna qualify under that permitted purpose test. The second part of the test says that we need to be eliminating uncertainty. And so we need to think about here is when we got started, when we were thinking, "I'm going to develop this product," what were the questions that you had?

Did you have any questions about—how am I gonna develop this product? What does the design look like? Am I even capable of developing a product that can do this? Those are the questions you want to be thinking about and if you're asking those questions, that meets this requirement, that meets this elimination of uncertainty tests. What were the questions you had when you began the work?

The third part of the test says that you need to be using a process of experimentation to answer that uncertainty. So what were the questions you were asking along the way, and what was your process for answering those questions? And we're gonna be thinking about things like going through an iterative process, going through iterations of development, developing a prototype and testing that prototype.

Let's think about agile software development when we're going through iterations of software development. And it doesn't have to be that some of those iterations didn't work at all, were completely not successful. Maybe they didn't work well enough, they weren't getting you to the point or the performance that you were looking for the product you wanted to sell to your customer.

And so everything along that line of going through those iterations, designing, building, testing, modifying, retesting, that's your process of experimentation. It's not necessarily, you know, just the scientists in the labs. It is things like, just kind of going through a development process and kind of continuing to adjust and refine your product.

And then finally the work needs to be technological in nature. So this is a pretty clear cut test. Work that is eligible for the R&D credit needs to meet this requirement too, which says that the work needs to rely on physical or biological sciences, engineering or computer science. So we need to have work that kind of falls into one of those categories in order to be eligible for the credit to meet that technical component.

So if we have qualifying activity for the credit, how do we know what this credit is gonna be worth to us? We have three categories of qualifying expenses or qualifying research expenses that go into our credit calculation. Primarily, we're gonna be thinking about the time that is involved in the development process and any materials or supplies that are used up in the development process.

So let's start with the first category being wages. This is typically the biggest component of expenses for the R&D credit. And what we're gonna think about here is our employees in the company that are involved in our development process. How much of their time, if I think of the total year, about how much of their time do they spend on R&D?

And this is gonna be somebody who's involved in kind of the hands-on development activities, somebody who's directly supervising that work, or maybe someone in a support type role. And if we say that this individual spent about 60% of their year doing hands-on development for our new product, we can include about 60% of their compensation in kind of that bucket of qualifying spend for the R&D credit.

The next category of expenses we can include, include our contractor expenses. So maybe you don't have, you have somebody who's not necessarily an employee of your company, but you have somebody who's outsourced, who is involved in that R&D process. Your process of experimentation, we're able to include 65% of that cost in your qualifying expenses for the credit.

And one important note there that also relates to you know, employees and the wages that you're including for the credit, is the work does physically need to be done in the U.S. in order to qualify. If you have a contractor who's working offshore, who's involved in your development process, that doesn't keep you from taking the credit, but you do need to leave that portion of the expenses out.

And then finally supplies. And so supplies in this case are gonna be things that are used up or consumed in the development process. Think about raw materials that are used up in testing, maybe a manufacturing process when you're trying to improve speed or efficiency or reduce waste. The raw materials that are flowing through your manufacturing process in those kind of test iterations, the cost of those materials is includable for the R&D credit.

We're not able to include things like capital assets, equipment, overhead type costs, rents. Those expenses do not qualify as supplies. And then what we're gonna do is we're gonna pull together those three categories of expenses and the credit generally comes out to be about 7 to 10% of that spend.

Okay, so let's talk about the process. So what is the process involved in doing an R&D study? So we can talk about an R&D study. That's usually the documentation you're gonna generate that says, "I did meet the requirements and the tax good for the R&D credit. This is how I know I met those requirements, and here's my calculation and my qualifying spend."

It just kind of ties everything together for you, is what the R&D study is supposed to do. So we're gonna start off by saying, you know, your first part of the process is gonna be to identify what projects did I have that qualified? What new products was I developing?

What was I improving upon over the course of the year that would be eligible for the credit? And how do those activities, those projects meet the requirements of the four-part test? So we've met the requirements of the four-part test. We have qualifying activity for the credit. We're going through that process of experimentation.

Now we need to capture the expenses. Step two is, what did that process cost me? What did it cost me in employee time? What did it cost me for contractors? What were the supplies that were used up that were a part of that development process? And those are gonna be the qualifying expenses. And we talk about, you know, one of the points on that step two is creating nexus.

What nexus is, is that showing a connection between your qualifying spend for the credit and the qualifying activities that were a part of that four-part test. So you can describe that qualifying work and then you really need to make a connection. This individual is involved in developing the design for this new product, and in building that new product and going through the testing process.

So showing how those individuals, the time is associated with your development process is important and that should be laid out in your R&D study report. The third part of this process is then generating that final documentation, that final study report that supports the credit number you're going to claim and creating a form 6765, that's just an IRS tax form that is included with the business income tax return.

So the credit does need to be filed as a part of the business income tax return. So it's important that you talk to your CPA or tax preparer and make sure if they are not the one that's completing your R&D study, that they don't file your tax return without that form being included. The R&D credit is claimed as a part of that income tax filing.

And then finally, step four is actually kind of receiving your benefit, so you're coordinating with your CPA or tax preparer to include that form in your tax return. If you're using an income tax return, or, I'm sorry, if you're claiming an income tax credit, the credit can be applied directly against taxes that are due on that return.

If the tax due is less than the credit amount, you're able to carry the credit forward for up to 20 years. And then the other side of that is if you are a qualifying small business that's taking the credit against payroll taxes, there's one more step. You still claim the credit on form 6765 with your business income tax return, but then you need to work with your payroll provider and you need to provide the credit amount to them so they can apply that credit against your payroll taxes on your quarterly payroll tax filings.

And so this last slide that I wanna cover has to do with defensibility. So a lot of times when people start thinking about something that is going to provide tax savings to them, they get nervous about what is the IRS gonna say? What do I have to give them? How do I prove that it was okay for me to take that?

You know, how do I know I was right? And so what you want is that solid R&D study, that study report that kind of lays out all the requirements in the tax code for the R&D credit, ties all these things together for you. And these are kind of the different components you're gonna see in that R&D study.

You're gonna see a definition of the business component. What is the product? What is the technology that the company was looking to develop? And how does that meet the requirements of a product, process, technique, invention, computer software, those categories of products that are eligible for the R&D credit?

What about my qualifying activities? How does the development process that my company took meet the requirements in the four-part test? And so you really want that defined and outlined and described in your final study report so that you have good documentation explaining that.

The qualified expenses—where are the expenses that are being included in my credit calculation? How do they fall into those three categories of eligible expenses? And then also, how do those expenses support my development process? How can I demonstrate that those expenses are what the cost of my development process was?

And then finally the calculation of the credit. And so here we're gonna look at, there are a couple of different methods that can be used to calculate an R&D credit. There's one credit that relies on very early historical information of the company. And there's another method that relies on, you know, the current year and maybe just a few prior years in calculating your credit. You wanna make sure you've used appropriate calculation methods and that those methods are laid out.

This is the kind of information that an auditor would look for in the event that there was an audit. They would look to see that that information is laid out and tied together and defined and kind of tied back to the requirements that are in the tax code so that you have a good, solid report that supports your credit, should you ever be in an audit situation.

Tyrone:
Awesome. Monika, real quick, cause it just hit me as we were going through this. For those of you that don't know, Monika and I have done this more than once, but is it fair? You know, I sort of tied together the startup aspect to it at the payroll tax level and then moving, maybe graduating as you grow and make investments to the business income level and then being able to carry that forward 20 years.

That, I mean, is it fair to assume that if I put my SMB hat on, that this is really an investment in the future if I'm gonna be making R&D investments over time and maybe there's a year in the future that I don't, but I could still reap the benefit of a previously claimed credit.

Is that fair? The life cycle of this is looking at almost generationally.

Monika:
Yeah. I think that's absolutely fair. I mean you know, our company's focus has always been on—this is something that a company can do every year. Yeah. How many software platforms do you know were developed by a vendor who is then just developing it and leaving it alone, and they're not gonna do anything else to it for the next 10 years and they're gonna continue to sell the exact same product to their customers?

Yeah. They're doing something every year. It's a part of your normal business. It's the work that you're already doing. The investment that you're already making in your business and your products, you're eligible for this credit. You've already earned it every year. Yeah, and so what the goal is, is to make this a simple process so that it can be claimed every year easily for businesses.

And it's really an investment that should be made, you know, every year, so that you do have that carry forward credit. It is available to you. And even if you don't, if you're not seeing right now that you can use the full amount of that credit, there's a long stretch of time that it's available to be used to offset taxes.

Tyrone:
Yeah. That's awesome. I told you she was an expert, everybody. That was really cool. You know, doing this webinar a few times, something new sinks in every time and that's, that was just it. But you know, the longevity of this credit is not something to dismiss. I hope that you saw what attracted TriNet to Clarus ‘cause there's a bunch of Monikas out there interested in having a conversation with you all about the R&D tax credit program and how it pertains to your business.

You can see here the partnership, the security, that study, the way they go about doing the credit is really impactful and really important. And again, something that we just wanna make sure in National Small Business Week that you walk away with the understanding of two things.

One, this is out there, right? And then of course, we at TriNet and Clarus, now one team, are excited to work through this with you and offer it to you so that you get access to that big $60 billion bucket of unclaimed R&D tax credit funds. So with that, we're gonna end. We do have a couple questions that we've received that I want to get to.

We've got about five or six minutes left, but these are gonna be some questions that came from the audience that are gonna reiterate, I think, a little bit of what we talked about today. And then we can go from there. So Monika, just you know, I think this goes in the international bucket. Can a U.S.-based company benefit from an overseas contractor doing this? And if so, what are the details there? I just, you know, maybe spend some time on the international aspect of this program.

Monika:
Yeah. So the one thing to think about is: this was really developed to provide incentives for development work here in the U.S., and so if you have a contractor who is offshore, who's not physically located in the U.S. doing the development work, unfortunately those expenses can't be included.

Maybe they're part of an organization that has you know, a supervisor here in the U.S. and the time that the supervisor spends physically working in the U.S. and does qualify if they were involved in this project and the supervision of that development work, but unfortunately, the work that is physically done overseas cannot be included.

Tyrone:
Okay. Nope. Fair enough. And what happens if income does not cover the R&D tax credits? Will they roll forward?

Monika:
Yeah, so that's important to think of, is that, you know, maybe, "Oh, my company just has a small amount of income tax that they have to pay this year. And that's what it looks like for the next couple of years. It might, you know, might really pick up after that. And I might have, you know, significant more sales, significantly more sales, and significantly more taxes to pay."

It's just important to know that it does carry over. It's not something that you have to use this year and then it goes away. You can use it going forward. You're allowed to accumulate those credits and use them going forward. And it'd be nice to have kind of in your back pocket as you anticipate the growth in your company and anticipating more income tax liability going into the future.

Tyrone:
Got it. Thank you. This is a real time question, and I like it. Do R&D costs on a hosted infrastructure like AWS count towards a qualifying expense under supplies?

Monika:
Yeah, so that's a good question. And actually it does. So when we think about AWS costs, a lot of times, you know, when we're talking about software development and there are AWS costs, these cloud hosting type costs and things like that, what we wanna think about, and it's not something that you can count as easily as the raw materials going into the manufacturing process or the ingredients going into that new craft beer, you know.

You don't have your test batches and things, but you can think about, you know, if I think about my AWS cost for the company, how much of that is probably time that I've got individuals in there, you know, working on my development and how much of it is really supporting my existing product that my customers are using?

And if you can think about it from a user perspective or a time perspective, it's fair to allocate those expenses out, to assign part of that cost to your R&D process. That's fair.

Tyrone:
Outstanding. I hadn't even thought about that. But the way, you know, to think about, and correct me if I'm wrong, but to think about qualifying expenses, it's the type of resource and the type of outcome that's going into a development sort of expense or investment, correct?

Monika:
Exactly. That’s right.

Tyrone:
Outstanding. Well, I think that's it. I appreciate the questions. I know we've got about one or two minutes, but I'd rather end, give you back a minute or two, get ready for the next session than push us to the end and go over. So I hope that you got some value out of today's session.

Monika and I enjoy getting in front of clients, getting in front of prospects to explain the R&D tax credit program, to explain, you know, what this new partnership between TriNet and Clarus is able to provide you and potentially provide some of you in the future. Hope you're really enjoying TriNet's Summit for National Small Business Week.

There's some really good sessions the rest of the week. I highly advise you take the time to do that. I do believe this webinar will be recorded, but again, please walk away with your opportunity to get with Clarus for 30 minutes and have a free consultation to dig into you and your business and your potential applicability for the R&D tax credits. And hope to see you and hear from you in the future.

Thanks all.

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