{"id":1189,"date":"2024-07-30T14:03:00","date_gmt":"2024-07-30T19:03:00","guid":{"rendered":"https:\/\/www.mgocpa.com\/?post_type=perspective&p=1189"},"modified":"2025-07-21T08:19:54","modified_gmt":"2025-07-21T13:19:54","slug":"case-study-how-mgo-helped-a-startup-manufacturer-maximize-the-rd-credit","status":"publish","type":"perspective","link":"https:\/\/www.mgocpa.com\/perspective\/case-study-how-mgo-helped-a-startup-manufacturer-maximize-the-rd-credit\/","title":{"rendered":"Case Study: Helping a Startup Manufacturer Maximize the R&D Tax Credit"},"content":{"rendered":"\n

Background:<\/h2>\n\n\n\n

Since the 1980s, the Research and Development (R&D) credit<\/a> has offered companies a financial incentive to invest in innovation. Once limited to those passing a stringent discovery test, the credit has expanded to include a broader spectrum of businesses, thanks to the more inclusive four-part test.<\/p>\n\n\n\n

This shift provides companies investing in innovation a critical opportunity to reduce their tax burden and support cash flow. However, recent legislation has changed how businesses deduct research and experimentation (R&E) expenses.<\/p>\n\n\n\n

Before 2022, companies could deduct R&E expenses in the year paid or amortize them over 60 months. However, legislation passed in 2017 that didn\u2019t go into effect until 2022 mandates that companies must amortize R&E expenditures over 60 months rather than immediately deducting them.<\/p>\n\n\n\n

This has been financially devastating to many companies. Due to this change, many can\u2019t afford to pay their tax liabilities and some are even struggling to survive.<\/p>\n\n\n\n

In this environment, it\u2019s essential for companies investing in research and development to optimize the R&D credit.
<\/p>\n\n\n\n

\n\n\n\n

<\/p>\n\n\n\n

The Challenge:<\/h2>\n\n\n\n

A startup company focused on developing autonomous driving mechanics faced a significant challenge due to the high costs of R&D. With total investments exceeding $700,000 and annual revenue of just $5,000, they were not yet profitable and, therefore, had no income tax liability to offset.<\/p>\n\n\n\n

Despite this, the innovative spirit of the company necessitated substantial investment in R&D, which was not supported by immediate tax deductions per the new regulations.<\/p>\n\n\n\n

Approach:<\/h2>\n\n\n\n

MGO, with its deep understanding of tax regulations and R&D credits, stepped in to navigate the complex landscape of R&D incentives.<\/p>\n\n\n\n

The solution leveraged the payroll tax offset, allowing the startup to apply R&D tax credits against their payroll tax liability. Prior to the 2023 tax year, claims were limited to the $250,000. Starting from the 2023 tax year, these claims can be maximized even further.<\/p>\n\n\n\n

The payroll tax offset provision, available to startups with less than $5 million in gross receipts and less than five years of operation, proved vital for this early-stage company.<\/p>\n\n\n\n

This strategy was crucial for the company, given its high payroll expenses and lack of taxable income.<\/p>\n\n\n\n

Value to Client:<\/h2>\n\n\n\n

Through the strategic application of the R&D credit, MGO secured a $150,000 benefit for the company, effectively reducing its payroll tax expenses.<\/p>\n\n\n\n

Using the R&D credit to offset payroll taxes provided the much-needed liquidity to support ongoing innovation efforts, demonstrating the transformative power of R&D incentives for startups.<\/p>\n\n\n\n

MGO\u2019s knowledge and experience enabled this autonomous driving startup to fully utilize R&D tax credits despite having limited revenue. By applying the credit to payroll taxes, the company could sustain its innovation journey in a challenging economic landscape.<\/p>\n\n\n\n

Your Trusted R&D Tax Credit Advisor<\/em><\/h2>\n\n\n\n

At MGO, our professionals bring more than 30 years of R&D tax experience to help you document, file, and defend your R&D tax credit claim.<\/em><\/p>\n\n\n\n

Contact MGO today<\/a> to discover how we can help you maximize R&D tax credits to support your growth and innovation journey. We welcome the opportunity to provide a complimentary R&D tax credit eligibility analysis to determine whether this valuable tax incentive can fuel your business\u2019s investment in innovation and growth.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Background: Since the 1980s, the Research and Development (R&D) credit has offered companies a financial incentive to invest in innovation. Once limited to those passing a stringent discovery test, the credit has expanded to include a broader spectrum of businesses, thanks to the more inclusive four-part test. This shift provides companies investing in innovation a […]<\/p>\n","protected":false},"featured_media":1190,"template":"","meta":{"_acf_changed":false,"content-type":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0},"perspective_topic":[22,102,68,16,23],"perspective-type":[72],"class_list":["post-1189","perspective","type-perspective","status-publish","has-post-thumbnail","hentry","perspective_topic-manufacturing","perspective_topic-tax-credit","perspective_topic-tax-credits-and-incentives","perspective_topic-tax-guidance","perspective_topic-tax-incentive","perspective-type-case-studies"],"acf":[],"yoast_head":"\nCase Study: Helping a Manufacturer Maximize the R&D Credit - MGO CPA | Tax, Audit, and Consulting Services<\/title>\n<meta name=\"description\" content=\"Discover how MGO secured a $150,000 benefit for the company through the strategic application of the R&D tax credit.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.mgocpa.com\/perspective\/case-study-how-mgo-helped-a-startup-manufacturer-maximize-the-rd-credit\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Case Study: Helping a Manufacturer Maximize the R&D Credit - 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