When it comes to tracking engineers’ time to substantiate the US R&D tax credit, your safest bet is to use a time tracking app on a daily basis. We love Harvest for this purpose. You can always use paper timesheets, excel sheets, or email records. Time tracking because increasingly important for later stage startups and those startups that are generating revenue or have already brought a product/service to market. This is because the line between improving a current product/service and developing new technologies becomes increasingly blurred. Remember, you can only claim the R&D credit if you’re developing something new.
Click here for more information on How to calculate a Startup R&D Tax Credit, or visit our Startup R&D Tax Credit Calculator.
How much will my startup really save by implementing the startup R&D tax credit payroll offset?
~10% of eligible R&D costs, up to $250,000 per year, for 5 years.
Watch out for companies that claim to be able to use AI or an automated system to track your engineers efforts. The IRS doesn’t care if a piece of software estimates something that goes into your Form 6765… if you get audited, which happens because these credits TAKE money from the US Treasury, then it’s the CEO who will be grilled about how the calculations were done. So work with an experienced CPA who knows tax credits in and out and who has survived multiple IRS audits.
Caveat: this article is intended as general guidance for startups and it doesn’t substitute the need to work with a professional. It’s also a high level overview and is in no way complete. Your company is unique; talk to your CPA.
Vanessa Kruze, a seasoned CPA, has an impressive track record prior to establishing Kruze Consulting. Her experience includes pivotal roles at Deloitte Tax and as a controller for a substantial startup with over 120 employees and $20 million in revenue. Under her leadership, Kruze Consulting has emerged as a distinguished CPA firm, recognized on the Inc 5000 list for five consecutive years, illustrating rapid growth and success in the competitive accounting landscape. Vanessa's unique approach, combining deep industry knowledge with advanced automation and software solutions, has positioned her firm as a leader in providing comprehensive accounting services to startups across the United States.
