Could Your Healthcare Business Benefit from the R&D Tax Credit?
By Bradley Rod, CPA
We’re all living life a bit differently these days. As a result, businesses across nearly every industry have changed—in some cases, dramatically—the way they operate. Medical practices and healthcare businesses are no exception. Whether revamping patient care, racing to develop a vaccine, or designing patient portal services, those in the healthcare industry have had to continuously adapt as the pandemic has evolved.
If you’re running a medical practice, healthcare management or telemedicine software business, or even a startup medical device company, there’s good news amid the chaos: The changes you’ve made because of COVID could make you eligible for the research and development (R&D) tax credit.
So, if your healthcare business has had to pivot because of COVID, now may be the time to consider the R&D credit. Here’s what you should know about it.
It can provide cash flow opportunities.
The R&D credit is a dollar-for-dollar reduction of your federal tax liability making it akin to getting cash back. In other words, if you were to be eligible for a $30,000 credit, this amount would be applied directly to your tax liability. In certain situations, the credit could offset your state tax liability as well.
It’s not just for scientists and tech companies.
The R&D credit is available to any U.S.-based business, within any industry. The credit is designed to reward taxpayers for engaging in qualified research activities (QRAs), which could include designing, developing, or improving products, processes, techniques, or software. These QRAs don’t have to be new to the world; they only have to be new to your business.
For instance, COVID has impacted the way patients access healthcare in numerous areas of the country. To adapt, many hospitals have reconfigured their internal workflow processes. The seemingly routine act of “reconfiguring” could count as a QRA.
To qualify as a QRA, however, an activity must pass each part of a four-part test per the Internal Revenue Code. Also, QRAs must be performed within the U.S.
It’s not just for profitable companies.
This is great news, especially during an economic downturn. Startups and small businesses may qualify for up to a $250,000 credit annually, for a maximum of five years, to offset FICA payroll taxes.
It’s not just for this year.
The nice thing about the R&D tax credit is it can be applied retroactively. If your medical practice or healthcare-related business were to be eligible for the R&D credit, you could recoup current and up to three years of previous expenses for ongoing and completed QRAs.
Could your healthcare business benefit?
This can be a difficult question to answer. The four-part test I mentioned earlier can be complicated to follow and the documented required can be overwhelming. This is where the AEM team can help. We offer a complimentary initial R&D credit assessment that allows you to determine—without sacrificing time and money—if the credit could benefit your business. What’s more, we make sure you’re tracking and documenting the right activities to qualify.
If you’re ready to explore how the R&D credit could make a difference for your healthcare business, contact us today.
Bradley Rod, CPA is Senior Associate with Abdo, Eick & Meyers and has several years of experience working with clients in various industries and specializing in tax planning, research and development tax credit studies, 1031 like-kind exchanges, and corporate and individual taxation.
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