Tips for Simplifying the Documentation Process for Claiming R&D Tax Credits

Many business owners, manufacturers and software designers believe the process of documenting project expenses that qualify for research and development (R&D) tax credits is onerous and time-consuming. However, the effort is well worth it as their qualified projects can yield beneficial tax savings, increase their cash flow and give them a competitive advantage. Although setting up a system to capture acceptable expenses for a claim may seem daunting, qualified R&D tax credit professionals can make the process painless.

The first step is to determine which activities and processes may qualify for R&D tax credits according to a simple four-part test established by the IRS:

  • Permitted purpose/business component – Must relate to creating new or improved business components that result in improved function, performance, reliability or quality.
  • Technological in nature – Must rely on the principles of physical or biological science, engineering or computer science. These principles can cross into many industries including manufacturing, software design, device and component development, and engineering.
  • Elimination of uncertainty – Must be intended to discover information to eliminate uncertainty regarding the capacity, method or design for developing or improving a product or process.
  • Process of experimentation – Should include the evaluation of different alternatives to resolve or eliminate a technical uncertainty. This evaluation may involve modeling, systematic trial and error, simulation or other methods.

Once you know your activities qualify under the four-part test, the next step is to capture and document key information related to the project such as labor costs, supplies and payments made to third parties for performing qualifying research.

Although the IRS and state governments do not have specific requirements for the documentation needed to request the R&D tax credit, the IRS recommends keeping records in sufficient form and detail to substantiate the expenses that are being claimed.

Qualifying Labor Expenses

Because employees may work on several projects at once and perform different types of duties, it is important to segment qualified R&D activities from all other work performed. Many payroll systems can be programmed to track qualified research wages to qualified research projects.

The types of documentation that can be used to substantiate R&D labor expenses include:

  • Time tracking data
  • Employee W-2 forms
  • Payroll registers
  • Time questionnaires
  • Job descriptions
  • Meeting minutes
  • Interview notes provided for oral testimony

Qualifying Supply Expenses

Expenditures for qualifying supplies and materials used on projects often are more straightforward and easier to track. Accounting and purchasing systems can be programmed to flag qualifying expenses on projects. What qualifies for the R&D tax credit calculation can be surprising at times. For example, the supplies used to build prototypes used in research and development and later sold to customers may qualify.

Typical sources for documentation of supply expenses include:

  • General ledger
  • Chart of accounts
  • Purchase orders
  • Invoices

Payments Made to Third-Party Contractors

If a third-party contractor or firm provides research, design, engineering or other services on a qualified project, those expenses also may qualify for the R&D tax credit. Proper documentation and segmentation of qualified expenses is vitally important because contractors often comingle expenses on their invoices.

Documentation to qualify third-party expenses may include:

  • Third-party work contracts
  • Form 1099 for individual contractors
  • Purchase orders
  • Invoices
  • General ledger
  • Chart of accounts

Seek the Advice of Experts to Streamline Documentation and Claims

Claiming R&D tax credits requires a fair amount of documentation to satisfy the IRS and state governments. That’s why it is important to seek professional help from a tax consultant with substantial expertise in helping companies like yours successfully claim these valuable tax credits.

Engineered Tax Services can conduct a tax credit study which provides a comprehensive analysis of your business’ R&D activities. With this analysis, we can prepare a detailed claim package of expenses that qualify for R&D tax credits, and our professional tax experts will document your activities and expenditures. We will be prepared to defend your claims should state or federal tax authorities initiate an audit.

To learn more about claiming R&D tax credits for your company’s projects, visit our R&D tax credit page for more information and complete the form at the bottom of this page. If you have immediate questions about tax deductions for your business, please call Engineered Tax Services at (800) 236-6519.

Julio Gonzalez, CEO of Engineered Tax Services Acquires The Growth Partnership and the ABLE CRM Platform

October 19, 2020 (West Palm Beach, FL) – Julio Gonzalez, CEO of Engineered Tax Services (ETS) announced today that he has acquired both The Growth Partnership (TGP) and the ABLE CRM platform from longtime consultants Jeff Pawlow and Charles Hylan. Terms of the deal were not disclosed but Pawlow and Hylan have signed agreements to continue in their respective roles. Both companies will continue to operate under their current names and from their current locations.
ETS is the only licensed engineering firm providing specialty tax services to the architecture vertical. With the addition of TGP and ABLE, the ETS family of companies will be able to offer outsourced marketing services, specialized CRM tools, and state of the art training for architectural firms they are serving.

“The professional services space is rapidly adopting a more ‘advisory’ mindset and looking to drive additional value into their client relationships,” said Gonzalez as he addressed the strategic rationale for the acquisition. “Jeff and Charles have positioned TGP at the forefront of that movement. I look forward to introducing their significant expertise and the unique ABLE CRM platform to our client family.”

TGP and ABLE currently employ 15 people, a number that is expected to expand over the next 12 months based on anticipated growth related to the synergies between ETS, TGP and ABLE. The TGP and ABLE teams will join the ETS team of over 120 professionals serving more than 3,000 CPA firms and related associations.

Allan D. Koltin, CEO of Koltin Consulting Group, who advised both firms on the transaction commented, “This combination will prove transformational to Julio Gonzalez and ETS and quickly advance their position as thought-leaders and advisors to the profession. The additions of industry luminaries Jeff Pawlow and Charles Hylan along with the talented team at The Growth Partnership and ABLE will position ETS as the go-to option for firms looking to pivot from compliance to advisory services.”

“I am excited about adding TGP and ABLE to Julio’s growing family of companies,” said Jeff Pawlow, the former Managing Member and CEO of TGP and ABLE who will continue as a Managing Director at both organizations. “The expanded range of advisory services our clients will have access to via the ETS companies allow us to ‘complete the circuit’ when it comes to helping our clients position themselves as trusted advisors.”

“This is a one-of-a-kind opportunity to create something truly special in the marketplace,” said Charles Hylan, who will serve as a Managing Director at both organizations moving forward. “Our combination with Julio creates a situation where ‘1 plus 1 equals 5’ for our clients. The advisory mindset is going to be incredibly important in the years ahead as clients demand more than traditional ‘debits and credits’ from their CPAs.”




ETS is the only licensed engineering firm providing specialty tax services to architectural firms and their clients. As advocates for America’s small and mid-sized businesses, ETS helps architects add value to their client relationships by providing sophisticated strategies like cost segregation, the research and development credit, and other specialized credits and incentives, allowing them to retain more working capital and drive profitability.

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Since its founding in 1999, The Growth Partnership (TGP) has been helping professional services firms create sustainable, profitable growth through a diverse range of offerings that include: Outsourced marketing and marketing bureau services, non-technical training and education, client satisfaction and loyalty surveys, and strategic planning / firm retreats. TGP also administers the innovative Leadership Academy program for the American Institute of Architects.

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ABLE is the leading customer experience and CRM platform for professional service providers. ABLE helps CPA’s, architects, engineering firms, law firms, financial advisors and wealth management firms function as trusted advisors, build their own personal brand, better position themselves as thought-leaders in their respective practice area and differentiate themselves from the competition.

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