SaaS founders discovering that their business qualifies for R&D tax credits often lament that they didn’t take advantage of the credits sooner – but presuming qualifying activities took place in previous years, you may be able to retroactively file for this lucrative credit.
In this post, we’ll outline the basics of amending past returns to claim your R&D tax credit or using the current tax year’s credit for previous/future tax years.
SaaS R&D tax credits can be claimed for any open tax year
For any SaaS business, an open tax year refers to any tax year for which the company has already submitted a return that can still be questioned, reviewed, or audited by federal or state income tax authorities.
Typically, the IRS has a 3-year statute of limitations from the time the return was filed to initiate an audit or question the details provided on the tax return. Consequently, taxpayers are generally limited to this same time frame for making amendments of any kind.
Note: Software as a Service companies that have endured sustained multi-year losses may be eligible to claim R&D tax credits further back than open tax years.
Claiming for prior years of an ongoing project
It’s important to understand that R&D tax credits can only be claimed for specific qualifying activities that take place during that tax year. For longer, ongoing projects, you must be able to provide detailed documentation for which qualifying expenses took place during the tax year for the return you are amending.
This means you may need to amend multiple returns to claim all qualifying expenses from the project.
You cannot lump all qualifying expenses incurred over the course of the project into the year it was completed – but if you have not yet filed a claim for prior years of any ongoing project, you may claim qualifying expenses for each appropriate open tax year.
You do not need to wait for a project to finish before initiating an R&D tax credit study for the open tax year returns you wish to amend.
What happens to awarded credits that cannot be used?
For a SaaS business that does not have sufficient tax liability to use their R&D tax credits for the filing year, the credits must first be carried back one year (if a tax liability exists) and then any remaining credits can be carried forward – up to a maximum of 20 years.
Don’t make the mistake of believing you can’t claim R&D tax credits until your company is turning a profit. As a loss-making company, you could potentially claim an even greater percentage of your R&D expenditure than a profitable enterprise with the same qualifying activities and expenses.
Does amending a SaaS tax return with an R&D tax credit claim trigger an audit?
No. There are no automatic audits for SaaS companies retroactively claiming their R&D tax credits and you are no more likely to be audited when amending a filed return versus claiming the credits on the original return.
However, given that R&D tax credit audits can be thorough, My SaaS Advisor recommends that clients only claim the credit once sufficient supporting documentation has been prepared.
Amending your return
To claim R&D tax credits for previously filed years you must include Form 6765 with your amended return. While you may follow Form 6765 instructions on your own to submit your claim, we highly recommend outsourcing this challenging process to an experienced team of R&D tax credit professionals – to both maximize your credit and be 100% sure your claim is compliant.
My SaaS Advisor partners with an industry-leading R&D tax credit solution provider that offers a FREE assessment to determine eligibility and estimate your available credit before making any commitment to engage outside help with your claim.
Whether you DIY your 6765 or outsource, you will need to gather the following documents to begin your study:
- Profit and loss statements
- Expense receipts for activities related to research and development
- Invoices
- Balance sheets
To find out if partnering with My SaaS Advisor by Accountability Services is right for your Software as a Service business, schedule a complimentary 30-minute Discovery Meeting with one of our firm owners.
