The R&D Tax Credit Deadline: Important Dates and Jan 2025 Extension

The R&D tax credit is a really good incentive for firms to invest in development. According to a Jan 2024 report by NCSES (National Center for Science and Engineering Statistics), R&D investments increased by $72 Billion in 2021 to $789 Billion, and estimates for 2022 indicate a further increase to $886 Billion.

This growth is driven by federal tax benefits that enable companies to offset a portion of their qualified research expenses. These incentives encourage increased research activities and can significantly reduce the companies’ tax liabilities.

Timely filing ensures companies can fully benefit from their research investments and avoid leaving valuable tax savings on the table.

This article explores key deadlines for R&D tax credit claims, eligibility requirements, and the process of calculating and claiming the full credit amount.

Filing Deadlines for R&D Tax Credits

Standard Deadlines

Form 6765, the key document for claiming the R&D tax credit, must be filed with your income tax return, making timing a critical factor in the process. Coordination with other tax forms such as Form 941 (Employer’s Quarterly Federal Tax Return) and Form 1120 (U.S. Corporation Income Tax Return) is essential to ensure consistency and compliance.

Key deadlines:

• April 15th for calendar-year filers
• 15th of the fourth month after tax year conclusion for fiscal-year filers

It’s important to note that while a six-month extension can be obtained for the federal tax return (moving the deadline to October 15th for calendar-year filers), this extension does not apply to the R&D tax credit claim itself.

Quarterly Deadlines for Payroll Tax Credits

Businesses should be aware of quarterly deadlines, which can impact their ability to claim the credit against payroll taxes:

• Q1: March 31
• Q2: June 30
• Q3: September 30
• Q4: December 31

Recent IRS Update – Jan 2025 R&D Tax Credit Filing Extension

Recent IRS updates have extended the transition period for perfecting R&D claims for refund until January 10, 2025. This gives taxpayers additional time to ensure their claims meet the new requirements introduced in October 2021.

Eligibility and Calculation

When preparing Form 6765, businesses must calculate their maximum qualified research expenses carefully. The IRS uses a four-part test to evaluate eligibility, considering the qualified purpose, elimination of uncertainty, process of experimentation, and technical nature of the research activities.

For eligible companies, the R&D tax credit can provide significant benefits. Currently, businesses can claim up to $250,000 in payroll tax credits, with this amount set to increase to $500,000 starting in the 2023 tax year.

Best Practices for Timely Filing

To ensure timely filing and maximize benefits, clients should consider the following:

1. Start gathering R&D documentation early in the tax year
2. Consult with tax professionals well before the deadlines
3. Be aware of payroll provider turnaround times, which can range from 1-30 days
4. Mark key dates on your calendar to avoid missing crucial deadlines

Extension Options for Filing R&D Tax Credits

Extension Process

Businesses seeking to claim the R&D payroll tax credit have the option to file for an extension, which can provide additional time to prepare and submit their claims. An extension gives you additional time to file, but it doesn’t extend the due date for paying the taxes owed.

To request an extension, taxpayers must file the appropriate form before their regular tax return due date. For most businesses, this means submitting the extension request by April 15th. The IRS typically grants an automatic six-month extension, moving the filing deadline to October 15th for calendar-year filers.

Limitations of Extensions

It’s important to note that the extension for filing the income tax return does not automatically extend the deadline for claiming the R&D tax credit. The R&D tax credit claim, submitted via Form 6765, must still be filed by the original due date of the income tax return filed. This means that even with an extension, businesses must calculate their qualified research expenses and file Form 6765 by the initial deadline to benefit from the credit.

Special Considerations

For companies in a loss position, filing an extension may be less complex, as they typically won’t owe additional taxes.

Businesses can also amend previous year returns to claim the R&D tax credit, typically for up to three years. This option can be beneficial for companies that may have overlooked claiming the credit in previous years or those who have only recently become aware of their eligibility.

Consulting with a tax professional can help ensure that all deadlines are met and that the R&D tax credit is maximized within the given timeframe.

Deadlines for Amended R&D Tax Credit Returns

Companies have the opportunity to amend their tax returns to claim previously unclaimed R&D tax credits. The deadline for amending a company tax return is typically two years after the end of the accounting period. This two-year window is important for businesses that may have overlooked R&D credits or those who have only recently become aware of their eligibility.

State-Specific R&D Credit Deadlines

Overview of State Credits

While the federal R&D tax credit is widely known, it’s important to note that 43 states also offer their own R&D tax credits (Source: SSTI). These state-level incentives can result in significant tax savings for businesses that conduct eligible research. However, the deadlines and requirements to qualify for state R&D credits can vary significantly from state to state​.

Varying Deadlines

In most states, the deadline for filing the state R&D tax credit aligns with the state tax return deadline. Some states have different filing deadlines specifically for their R&D credits. For instance, in Maryland, businesses must file their R&D tax credit applications by November 15 of the calendar year following the tax year during which the eligible research expenses were incurred.

Key Considerations for State Credits

1. Research your state’s specific R&D credit rules and deadlines. Reliable sources include the Tax Foundation, Wipfli, and SSTI.
2. Determine if your state allows for different filing deadlines for R&D credits.
3. Ensure your documentation meets both federal and state requirements.
4. Consider how state credits might affect your federal credit calculations.

Given the complexity of coordinating federal and state R&D tax credit claims, it’s advisable to work with a tax professional who is familiar with both federal and state-specific R&D tax credit regulations.

Remember, while the opportunity to amend returns and claim state credits can be valuable, it’s always best to prepare your R&D tax credit documentation in advance. Having this information ready when filing your original tax return can streamline the process and help you avoid the need for amendments or last-minute rushes to meet state-specific deadlines.

Consequences of Missing Deadlines

Financial Implications

Failing to meet the R&D tax credit deadline can have significant financial implications for qualified small businesses. The Internal Revenue Service (IRS) typically maintains strict adherence to these deadlines, and extensions are rarely granted except under extraordinary circumstances.

When a company misses the deadline for filing its R&D tax credit claim, it risks forfeiting substantial tax savings. The credit, which can offset both income tax liability and payroll taxes for eligible small businesses and represents an opportunity that shouldn’t be overlooked.

In most cases, if a business fails to claim the R&D tax credit by the original due date of their tax return (including extensions), they lose the ability to claim the credit for that tax year. This can result in a considerable loss of potential tax benefits, directly impacting the company’s bottom line.

While the IRS may consider late claims under exceptional circumstances, these situations are rare and evaluated on a case-by-case basis. Some examples of potentially acceptable reasons for late filing include:

1. Severe illness of a key company officer or tax preparer at the time of filing
2. Major technical failures or system outages on the filing deadline date
3. Natural disasters affect the company’s ability to file on time

It’s important to note that common reasons such as workload, oversight, or lack of awareness about the credit are not considered valid excuses for late filing.

To avoid these consequences, businesses should:

1. Mark key dates on their calendar, including the tax return due date and R&D tax credit filing deadline
2. Gather data and organize R&D documentation throughout the year
3. Consult with tax professionals well in advance of deadlines
4. Consider filing Form 6765 with an extension request if more time is needed to prepare the full return

Remember, even if you file for an extension on your tax return, the R&D tax credit claim must still be filed by the original due date. Planning and staying organized can help ensure you don’t miss out on this valuable tax benefit.

If you’ve missed the deadline for a previous year, consider reviewing your eligibility for the past three years. While you can’t claim credits for years beyond the statute of limitations, you may still be able to amend returns for more recent years if you’ve overlooked R&D credits in the past.

Strategies for Meeting the R&D Tax Credit Deadlines

To successfully claim the R&D tax credit, businesses must implement effective strategies to meet crucial deadlines.

1. Establishing a process for tracking and documenting qualified research expenses incurred (QREs) throughout the year is essential. This proactive approach ensures that all eligible activities and costs are captured accurately, streamlining the filing process when deadlines approach.
2. Staying informed about changes in tax laws and filing requirements is crucial. Tax regulations can evolve, and being aware of updates helps businesses adapt their R&D tax credit strategies accordingly. Companies should regularly review IRS guidelines and consult with tax professionals to stay current on any modifications that may impact their claims.
3. While meeting the original deadline is ideal, filing for an extension can provide additional time to prepare a comprehensive R&D tax credit claim.
4. Working closely with experienced tax professionals is perhaps the most critical strategy for ensuring timely and accurate filing. These experts can guide businesses through the complexities of the R&D tax credit process, help identify all eligible expenses, and ensure compliance with IRS requirements.

Final Words

The R&D tax credit offers significant financial benefits for innovative businesses, but capturing these advantages hinges on meeting critical deadlines. The IRS’s extension of the transition period to January 10, 2025, provides a valuable window for companies to refine their claims.

Effective R&D tax credit management requires ongoing documentation, regular consultations with tax experts, and vigilant monitoring of IRS updates. Consider reaching out to our team of tax professionals.

Mastering the R&D tax credit process is more than a fiscal strategy—it’s an investment in your company’s future growth and technological advancement.

FAQs

Is there a time limit for making an R&D claim?

Yes, firms usually have two years after their accounting period to file an R&D tax deduction claim. This deadline aligns with most Corporation Tax claims and elections.

How long can the R&D tax credit be carried forward?

Unused R&D tax credits can be carried forward for up to 20 years. Businesses can also carry them back for one year. This allows companies to maximize their tax benefits over an extended period.

Is the IRS extending time to perfect R&D tax credit claims?

The IRS has extended the transition period for perfecting R&D tax credit refund claims until January 10, 2025. This extension gives businesses more time to ensure their claims meet all requirements.

Is the R&D tax credit still available?

Yes, the R&D tax credit is still available. It remains a valuable incentive for businesses engaging in qualified research activities, offering potential tax savings and supporting innovation.

What are the timescales for R&D?

R&D claims must be filed within two years of the accounting period’s end. For SME claims, the tax authority typically processes payments within 28 days of submission, with funds reaching accounts shortly after approval.

What are the limitations of the R&D tax credit?

A significant constraint is that taxpayers cannot deduct research expenses and seek a research reimbursement for the same expense. The amount of research credit must lower the research cost deduction sought.

Can businesses amend past tax returns to claim the R&D tax credit?

Yes, businesses can amend past tax returns to claim previously unclaimed R&D tax credits.