Learn how your New York company can claim the research and development tax credit for nontraditional research activities - OConnor Davies - New York CPA Firm - NYC

1. Financial Services Newsletter:
News & Trends
How to Benefit from R&D Tax Credits – New
Research Shows that Your Business May Qualify
Research and Development (“R&D”)
Tax Credits can result in significant
tax savings for a variety of
businesses, including financial
services and PE Fund portfolio
companies. Tax credits are available
at the federal and often at the state
level. Many businesses, however,
are unaware that they qualify for the
credits.
Even fewer are aware that it is
significantly more advantageous to
determine the credits prior to filing
an original tax return. For example,
for a calendar year filer, the best
time to capture any 2011 R&D credits
is now.
Businesses of all sizes and industries
qualify, not just large corporations
employing white lab coat scientists.
In fact, any business that designs,
develops, or improves its products,
processes, techniques, formulas or
even its software for commercial
purposes may be federal R&D credit
eligible if the activity includes the
following elements:
• The elimination of
uncertainty: The activity
must be intended to
eliminate uncertainty
concerning the
development or
improvement of a product
or process.
• A process of
experimentation: The
activity must involve the
systematic testing of
different alternatives and an
evaluation of the results
must have been conducted.
Note that the product or
process does not have to
ultimately succeed.
• Technological in nature:
The activity relies on the
principles of physical science
such as biology, chemistry,
physics, or computer
science or engineering.
For example, financial service entities
involved with risk management,
trading, and compliance systems may
be eligible for the credit if they
developed:
• Improved software
applications;
• Next-generation
infrastructure protocols for
process logic, data design
and data logic; or
• New data warehousing
techniques
Qualifying research expenditures
include wages, supplies and a portion
of contract research expenses
(outside consultant expenses).
The regular R&D credit is calculated
at an effective rate that is
approximately 6.5% of the of its

2. current year’s qualifying
expenditures. The exact rate
depends on the company’s “base
period amount,” which is based on a
company’s historical gross receipts
and qualifying expenditures.
Alternatively, businesses may elect
the Alternative Simplified Credit
(“ASC”) which is calculated at an
effective rate that is approximately
4.5%. The ASC is determined without
the complicated base period
calculation from data reaching back
10 years or more.
Businesses intending on maximizing
benefit from 2011 credits should
start quantifying available credits as
soon as possible because:
• The ASC election may only
be claimed on the current
year return;
• Only on the current year
return does an opportunity
exists to elect a “reduced
credit” allowing the
business to also fully deduct
expenditures claimed for
the R&D credit; and
• Certain state tax credits,
such as New York State’s
recently enacted Excelsior
Jobs Program R&D credit,
require that the business be
certified before claiming
credits. Therefore, the credit
can be taken only for
expenditures incurred
beginning on the date of
certification.
To find out more about the R&D Tax
Credits and whether your business
qualifies for tax credits, visit
www.odmd.com or call Eric Gelb or
Sandy Weinberg at (212) 286-2600.
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