Research and Development (R&D) tax credits have been a valuable tool for businesses to reduce their tax burden and support innovation. However, with the deadline for claiming R&D credits for the 2021 tax year quickly approaching, companies need to act now to secure these benefits before the opportunity expires.
The 2025 Deadline: Why Time is of the Essence
The IRS allows businesses to amend tax returns within three years of the original filing date, or two years after the taxes were paid (whichever is later), to claim R&D tax credits. For the 2021 tax year, this means that the last opportunity to file an amended return and claim R&D credits for 2021 is rapidly approaching for most tax payers. After this date, the opportunity to claim those credits will be permanently lost.
Failing to claim R&D tax credits for 2021 could result in significant financial loss. These credits can:
- Reduce tax liability by lowering your overall tax burden.
- Increase cash flow by providing a potential refund or reduction in future tax payments.
- Fund future innovation, supporting ongoing R&D initiatives that help your business stay competitive.
With so much at stake, it’s essential to act before the deadline and claim the credits you are entitled to.
Section 174 Amortization: Not an Issue for 2021 Claims
In 2022, a new tax rule—Section 174 amortization—came into effect, requiring businesses to amortize R&D expenses over five years instead of deducting them in the year incurred. While this creates more complexity for R&D claims going forward, the good news is that Section 174 does not apply to the 2021 tax year.
This means that companies claiming R&D credits for 2021 can still deduct 100% of their R&D expenses in full for that year, avoiding the new amortization rules that would otherwise spread the deductions out over several years. For businesses that invested in R&D in 2021, this offers a significant advantage: retain full deductions without the added burden of the new amortization schedule.
Why Claiming 2021 R&D Tax Credits is Critical
Claiming R&D tax credits for 2021 before the 2025 deadline allows your company to maximize the full benefit of your R&D activities. If your company engaged in eligible activities such as software development, prototype creation, process improvements, or any product development or testing, you could qualify for substantial credits.
How to Claim Your 2021 R&D Tax Credits
To claim your 2021 R&D tax credits, follow these simple steps:
- Identify eligible R&D activities: Review your company’s 2021 activities to determine if they qualify as R&D. This could include software development, prototyping, testing, or process improvements.
- Prepare supporting documentation: Ensure you have proper documentation to back up your claim, such as project plans, engineering reports, financial records, and other materials showing your R&D activities.
- Consult with a tax professional: R&D tax credits can be complex, and working with a qualified tax advisor is essential. They can help ensure you maximize your claim, stay compliant with IRS regulations, and avoid potential issues.
Don’t Miss Out on Potential Savings
With the deadline to claim 2021 R&D tax credits quickly approaching, now is the time to take action. Missing out on these credits means your company will lose out on valuable savings that could improve cash flow, reduce tax liabilities, and help fund future innovation.
Conclusion
The deadline is fast approaching, and your company needs to act now to claim R&D tax credits for the 2021 tax year. Don’t wait until it’s too late and risk missing out on the valuable tax benefits available.
By taking action now, you can maximize your credit by claiming the full benefit of your 2021 R&D expenses, simplify your claim by avoiding the added complexity of Section 174 amortization, and boost your bottom line by reducing your tax liability and increasing your cash flow.
At Strike Tax Advisory, we’ve helped hundreds of businesses and CPAs navigate the R&D tax credit process, and we’re here to assist you. Don’t leave money on the table—contact us today to ensure your company secures the R&D credits it deserves before the deadline.
