Case Study: How MGO Helped a Product Development Company Maximize the R&D Credit
Background:
Since the 1980s, the Research and Development (R&D) credit has been providing businesses with incentives to innovate.
An essential component of qualifying for the R&D tax credit is incurring research and experimental (R&E) expenses.
Until recently, businesses were able to deduct these expenses in the year paid or make an election to amortize them over 60 months. However, a provision in the Tax Cuts and Jobs Act of 2017 changed how businesses deduct R&E expenditures.
Starting in 2022, businesses must capitalize and amortize these expenses over 60 months rather than immediately deducting them. This change has been financially devastating for companies investing in innovation.
Challenge:
A product development company focused on the nutrition and fitness markets faced significant expenses associated with developing innovative workout products and ingestible pre- and post-workout recovery supplements.
With an annual revenue of $122 million, the company made considerable investments in R&D — totaling $2 million to $4 million over the last several years.
Since the company could not deduct those expenses in the year they were incurred, it needed to recoup some of the costs to sustain its research initiatives.
Approach:
MGO brought its extensive tax experience to the table to help this product development company navigate the complexities of the R&D credit.
We verified the company's R&D activities aligned with the four-part test to qualify for the credit and all projects were rigorously documented with records directly linking them to the four-part criteria.
Value to Client:
Through careful evaluation and strategic planning, MGO helped the client secure a substantial net federal and state R&D credit benefit of $250,000 for a single tax year. The company used these credits to offset its federal and state tax burden.
This demonstrates the significant impact that R&D credits can have on a company’s financial health. The $250,000 credit enabled the client to reinvest in its innovative product pipeline, maintain a competitive advantage, and continue developing groundbreaking nutrition and fitness products.
Your Trusted R&D Tax Credit Advisor
MGO’s tax professionals have more than 30 years of experience helping you document, file, and defend tax credit claims.
Contact MGO today to discover how we can help you maximize R&D tax credits to support your growth and innovation journey. Our team is ready to guide you through the complexities of tax incentives and deliver tailored solutions that fuel innovation and business growth.