Track your R&D efforts in one minute a day.
How much of what you are already doing qualifies as “innovation” under the R&D Tax Credit regulations? The projects have to pass certain requirements of the Internal Revenue Code (IRC). The good news is Armor makes it easy for you (or your tax professional) to tag the projects that meet these requirements. All you have to do is run your projects more efficiently with Armor, and the rest is simple. Here’s how it’s done:
So what’s this “nexus” the IRS is talking about?
To defend your claim for your R&D Credit, you not only have to show that the work qualifies as R&D, but you have to “contemporaneously” link the costs associated with the project to the activities. So let’s talk about resources.
Your R&D Credit is built off of costs you incur in three areas: in-house labor, supplies consumed, and third-party contractors utilized while completing each qualified activity. Ultimately, Armor’s job is to make it easy for you to link these resources to the projects as they’re used in executing the work. Remember, “easy” means “one minute a day” – so don’t get overwhelmed, Armor will take care of it.
This approach also gives you real-time visibility into the costs you’re incurring on each project. (Perhaps a simple way to track progress against budget?)
What projects should you track?
Any new or improved “Business Component” is potentially R&D. Per IRC section 41(d)(2)(B), there are six types of business components. Let’s break it down:
Products: The things you make and sell. Any new product, or your attempts to improve existing products, is potentially R&D.
Processes: How you make your products. Every time you evaluate the possibility of bringing on a new piece of equipment, this is a potential R&D process improvement project.
Software: Internal Use Software (the code development of new software functionality for the purpose of improving your operational efficiencies) should be tracked as an R&D software project.
Techniques: Where “processes” are how you make your products, “techniques” are how you execute those processes. Consider tracking things like Lean Manufacturing initiatives, quality initiatives, waste reduction initiatives, green initiatives, etc. Also in techiques, look at your tooling, fixturing and mold building activities.
Formulas: Although not formally defined in the regulations, “formulas” might include the development of new recipes, the attempted use at alternative materials, or possibly advance math formulation efforts.
Inventions: This is the old R&D Credit (pre-Treasury Decision 8930). See the discussion on the “Second Generation: 2001 – 2008“. If you’re developing patent-worthy products or processes, these efforts fall into this business component.
You already run your projects – YOUR WAY. Armor’s not going to change that.
Every manufacturer in America has their own way of executing their work. Armor was designed to be extremely customizable, to match your unique work flow processes. You can build Armor’s project Gantt charts using your own terminology and logical sequencing of project activities.
Armor’s project Gantt charts provide real-time, graphical representation of where the delays and issues are within each of your projects (valuable information for executives and project managers?). Unlike full-featured (and expensive) project management applications, Armor is updated by the folks actually doing the work – on a daily basis. You DO NOT want your project managers doing all the data entry in order to use the PM functionality!
Use Armor for ALL your project management needs, not just your R&D activities. This chart shows all related tasks - notice production and shipping tasks are included. You can use Armor to stay current on shipping schedules of all projects, compared to your commitments to clients.
Really, one minute a day?
Really. Which employees spend 15-20% or more of their time each week on R&D activities? That’s roughly 6-8 hours per week. Of all these employees, 9 out of 10 will log onto Armor every afternoon and log their hours on their timecard for the day. If it takes longer than a minute, they’re doing something wrong.
One in ten employees, of course, will have the added pleasure of setting up and running projects (another simple process in Armor). Once set up, these projects are available for folks to bill their time to. Armor makes this ”job-costing” effort quick and simple.
Did we answer all you questions? If not, email or call us - we’ll answer them quickly so you can move forward in documenting your R&D activities per the IRS requirements.
