The healthcare technology industry has advanced astronomically since the COVID-19 pandemic and is projected to grow to $1.9 billion by 2030. Research and development (R&D) is at the core of the industry’s growth, driving innovation, improving patient outcomes, and maintaining competitiveness in a rapidly evolving market. We have provided a case study to show how companies in the healthtech industry can receive tax savings from their R&D activities with an R&D tax credit study. Throughout our analysis, the client can expect:
- Tax Savings: Through an R&D tax credit study, clients have the potential to receive both a federal and state tax benefit to reduce income tax liabilities. These savings allow companies to reinvest them into new technology, expand research efforts, or fund operations.
- Offset payroll taxes: For newer businesses, companies can leverage the R&D tax credit to offset their payroll tax obligations. This alleviates the burden of employment taxes, freeing up valuable capital that can be reinvested into further innovation and business growth.
- Incentive for ongoing innovation: The availability of R&D tax credits provides a financial incentive for healthtech companies to maintain or increase their research activities. Knowing they can recoup some of their expenses encourages companies to invest in high-risk, high-reward projects, pushing the envelope of innovation.
Background
A healthcare technology company that offers a tech-driven service that simplifies the medication journey for patients, providers, payors, and employers by combining clinical expertise, advanced technology, and comprehensive analytics contacted Calvetti Ferguson to determine if the company has qualifying R&D activities.
Our tax incentives team conducted an R&D tax credit study along with a Section 174 analysis to determine employee activity percentages and gather information to support R&D activity. Through discussions with the company’s chief executive officer and chief of staff, we were able to identify a large amount of R&D activity occurring in 2023. Qualified activities included enhancing the user interface and experience of their platforms to improve patient engagement and usability. The company also developed systems to integrate various health technologies, such as electronic health records and pharmacy management systems, to streamline medication fulfillment while creating and refining algorithms for personalized medication management and adherence tracking.
Since the company was newer, they were aware of the opportunity to offset some tax and payroll tax liability, making an R&D tax credit study inevitable.
Value
The R&D tax credit study revealed qualified R&D activity that resulted in:
- A federal tax benefit of $25,000
- A state tax benefit in two states totaling $16,000
- The ability to offset payroll taxes
- The implementation of a new system that tracks R&D information
This value frees up capital that can be reinvested into further innovation and growth initiatives.
Analysis and Solution
Calvetti Ferguson worked with the tax director to execute a seamless process while conducting R&D calculations. To ensure the process remained smooth, our team maintained frequent internal communication, allowing us to streamline the work and address any potential challenges proactively. The client utilized the R&D Kipsi software to provide all necessary information in a digital format, significantly improving tracking and reviewing efficiency.
During the review, the company supplied detailed project documentation, offering in-depth insights into its design efforts. The overall implementation took approximately 3-4 weeks, during which the client was fully set up in the system, uploaded the required data for review, and our team conducted an in-depth analysis to advance to the next phase of the study.
About Calvetti Ferguson R&D Tax Credit Study Services
Calvetti Ferguson R&D tax credit services help companies unlock valuable tax savings, easing financial pressures by reducing tax liabilities and freeing up capital to reinvest in innovation, growth, and operational improvements. Our consultants will assist you in identifying and capturing federal and state R&D tax credits that can drastically reduce your tax liability. We take a tailored, comprehensive approach, ensuring that all qualifying activities are thoroughly documented to maximize your credit potential. Not only can we review your current tax year, but the R&D tax credit can be taken for all open years, providing a refund on amended returns and instant tax relief on your current year. If a credit cannot be used in the year it is identified, it can be carried forward up to 20 years.
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