Mind The GAAP

Demystifying the Research and Development (R&D) Tax Credit (with Mandee Page of Redpath and Company)

In the latest episode of the Mind the GAAP podcast, host Sean Sullivan talks with Mandee Page, Director of the R&D Tax Credit service area at Redpath and Company [https://www.redpathcpas.com]. They dive into the intricacies of the Research & Development (R&D) tax credit, its purpose, and common misconceptions surrounding it. Mandee explains that the R&D tax credit was introduced in 1981 to encourage innovation in the business sector and stimulate economic growth. This credit offers businesses a dollar-for-dollar reduction in their tax liability, providing them with more capital to continue innovating. While it's often associated with new product development, the credit also applies to continuous improvements on existing processes, making it more widely applicable than many businesses realize. Mandee emphasizes that U.S. companies are a primary funding source of R&D, and the credit is designed to keep innovation and jobs within the U.S. The credit incentivizes not just new products but also the improvement of existing products and processes, making it crucial for ongoing innovation. A significant misconception is that the credit is only available to highly technical industries, but as Mandee points out, industries like manufacturing, food production, and even wineries and breweries might qualify for the credit by making improvements in their processes. The conversation moves to the eligibility criteria for the R&D tax credit. Mandee explains the four-part test that companies must pass to qualify: 1) the research must aim to improve or develop a business component, which could be a product, process, or software; 2) the work must involve hard sciences like biology, chemistry, or engineering; 3) there must be uncertainty at the outset of the project; and 4) the company must engage in a process of experimentation to resolve the uncertainty. These criteria ensure that companies are truly innovating and taking on projects that advance their industries. Mandee also highlights the types of expenses that qualify for the credit, with wages typically being the largest. This includes not only the employees performing R&D but also those directly supervising and supporting them. Other eligible expenses include supplies consumed during the R&D process and contract research, provided the contractors are based in the U.S. She explains that while wages are typically the most significant expense, supplies used for prototyping and testing also count, as well as contract research costs, though with certain limitations. Sean and Mandee also discuss the process of applying for the credit, which begins with an initial consultation to determine eligibility. This is followed by a thorough analysis of the company's records and activities to ensure they meet the necessary criteria. Mandee stresses the importance of substantiating claims with detailed documentation, such as meeting notes, emails, and internal memos, to demonstrate the process of experimentation and the uncertainties faced during the project. The episode concludes with Mandee encouraging business owners to explore whether they qualify for the R&D tax credit, noting that many companies miss out on this valuable opportunity because of misconceptions. She emphasizes the importance of early planning, particularly for companies that know they'll be engaging in R&D activities in the coming year, as proper documentation and preparation are key to successfully claiming the credit.

Leveraging Trusts as Part of a Complete Wealth Management Strategy [with Jon Fortin of Redpath and Company]

Jon Fortin [https://www.redpathcpas.com/meet-the-team/jon-fortin], Partner and Wealth Services advisor at Redpath and Company, joined Mind the GAAP to discuss trusting planning as part of a sound wealth management strategy. Jon advises that everyone should have 4 things as part of their legal and wealth management repertoire: a will, a power of attorney, a healthcare directive, and...a trust. Jon and Mind the GAAP host Sean Sullivan discuss why trusts are important wealth management tools and why individuals with complex wealth management and estate needs should include their entire team of financial advisors in the trust planning process. Learn about the different types of trusts and how they can be used to preserve your wealth, create a legacy for future generations, and mitigate tax liability. If you have questions about this podcast or any other wealth accumulation strategy, contact a Redpath and Company advisor here. [https://www.redpathcpas.com/contact]

Preparing for the Sunsetting Provisions of the Tax Cuts and Jobs Act (With John Kammerer of Redpath and Company)

John Kammerer, Partner and Tax Leader at Redpath and Company [https://www.redpathcpas.com], joined Mind the GAAP to discuss some of the sunsetting provisions in the Tax Cuts and Jobs Act (TCJA) of 2017. He also explains what business owners can do to prepare themselves for the many potential outcomes—which may be dependent on how the presidency swings in November of 2024. While widely regarded as "sweeping tax reform" at the time of its passing, the TCJA is on its last legs without an act of Congress to either extend or make permanent the tax provisions enacted back in 2017. Outside of some provisions that have already begun to phase out, the clock is ticking as we inch closer to December 31, 2025. Some of the provisions that are affected: * Tightening of the interest limitation rules under IRC 163(j) by no longer allowing it to be based on adjusted taxable income that is before the deduction for depreciation and amortization (for tax years starting before 1/1/22). * Beginning of the phase out of bonus depreciation (80% started in 2023). * Required capitalization of research and experimental expenditures for years beginning after 12/31/2021. * For years beginning after 12/31/2025, the 199A deduction will no longer available. * The top rate of 37% is scheduled to once again move to a top rate of 39.6%. There are other changes to the tax brackets as well for years beginning before 1/1/2026. * The expanded estate tax exemption is scheduled to sunset and be cut in half for transfers/gifts made after December 31, 2025. While the changes that have started taking place have been impactful for many businesses, the upcoming sunset of the IRC 199A deduction will be especially significant and could cause many businesses to have to rethink their current tax classification or tax structure.

Informing Business Strategy Through Current State Assessments (with Kory Boyer of Redpath and Company)

Kory Boyer, Director in the M&A Advisory Practice Area at Redpath and Company, joined Mind the GAAP to discuss how to leverage a current state assessment to set a solid foundation and inform your business growth strategy. With all disruptions in the world—a pandemic, political, geopolitical, regulatory, technology, shifting markets, sourcing and supply chain challenges, etc.—it's no wonder that business owners are left contemplating how to move forward with a solid business growth strategy. Appropriately responding to rapid change has always been, and always will be, one of the toughest hurdles business owners may face. And that's because the decisions you make and the direction you ultimately decide to go might be too subjective and rooted in emotion or gut feeling—versus cold, hard data. So, what should you do as a business owner when the decisions you make seem to only be made to play "catch up" versus "getting ahead?" Establish a baseline and gather data that can help inform your decisions, set a vision, and ultimately prepare you for the future. A current state assessment means going back to the tried and true and understanding the forces impacting your business and the overall market. Ultimately, what keeps you awake at night? Competition? New entrants? Supplier power and customer power? Threat of substitutes? Customers What is your customer history? * Are you keeping or losing historical customers? * How are you growing? Of those customers that are staying: * What do the conversations take you regarding what they'd like to see? New products? Variations to current products or services? Of those customers that leave you: * Why did they leave and what are their true sensitivities? Product? Service replacement? Pricing? Customization? Customer service? Competition, Barriers, and Substitutes Competition, regulatory barriers, and substitutes are highly inter-related pieces of the market puzzle, and you should consider the following: * Where are you positioned with competition? Leader, laggard, or on par? * Are there any high barriers to entry, including capital outlay or regulatory approvals? * Have you seen a lot of new entrants? * Is the market evolving? Are your products and/or services being impacted by new trends in the market (AI, on-demand, cloud, new safety, ESG, etc.)? Suppliers and Supply Chain Since the pandemic, this has been a huge strategy piece due to supply chain shortages, cost hikes and continued inflation. * What has been your biggest impact to the supply chain? COGS, timing, or other? * Have the suppliers started controlling the pricing and timing (less negotiations)? * Have you evaluated multi-sourced supply chain? Now that you know where you are, do you know where you are going? This is a great time to revisit the objectives, priorities, and metrics of the company. You should consider and review data regarding: * Market development * Market penetration * Diversification * Offering Development Final Thoughts Never stop evaluating your business. Keep it moving forward. Will Rogers once said, "Even if you are on the right track, you'll get run over if you just sit there". Don't be afraid to have a conversation with your advisor. Even if it is over a cup of coffee and writing on a napkin. Reach out to a Redpath advisor here. [contact]

Protecting Your Local Government from Phishing Scams (with Rebecca Petersen of Redpath and Company)

In this episode of the Mind the GAAP podcast, Rebecca Petersen, Director in the Government Industry Practice at Redpath and Company, joined host Sean Sullivan to discuss the steps local governments can take to help avoid falling victim to phishing scams and the impact of failing to do so. Falling victim to a phishing scam may not—unfortunately—be a question of "If?" but a question of "When?" According to a 2023 article by Forbes magazine [https://www.forbes.com/advisor/business/phishing-statistics/]: * Phishing is one of the most prevalent cybercrimes and it continues to grow. * 500 million phishing attacks were reported in the U.S. in 2022—double the number of attacks of 2021. * Email is typically the most commonplace scam with text messaging and phone calls becoming more prevalent. * There were 300,000 phishing victims in the U.S. in 2022 . * Phishing scams resulted in a total loss of $52 billion in the U.S. Listen and find out: * Why do local governments fall victim to phishing scams? * What makes them vulnerable to this attack? * What steps or best practices can local governments follow to help protect themselves? Examples discussed: * January 2022 - Tenino, Washington * Loss of $280,000 * May 2022 - Kosciusko County, Indiana * Loss of $300,000 * August 2022 –Portland, Oregon * Loss of $1.4 million * September 2023 – Fort Lauderdale, Florida * Loss of $1.2 million