Season 1, Episode 16 – Tax Credit Nirvana

Transcript

Speaker 1: 0:00

Welcome to powered by Podio. Automation is everything. Super. Charge your business with Podio. Get ready for another episode of super charged with Jordan Samuel Fleming, your weekly dive into the awesome impact workflow and automation you can have on your business when it’s powered by Podio. Join US each week as we learn from the top Podio partners in the world as we investigate system integrations and add ons and hear from real business owners who have implemented Podio into their business. Now join your host, Jordan, Samuel Fleming, CEO of game changers for this week’s episode.

Jordan: 0:45

Hey everybody, and welcome to this episode of Supercharged. I’m your host Jordan Samuel Fleming here to talk all about the power of workflow and automation when your business is Powered by Podio. Today’s guest, David and Anders from Leyton (www.leyton.com). Now they are specialists in R&D Tax Credits. Guys welcome to the podcast and why don’t you just introduce yourselves and the company please.

David: 1:07

Absolutely. Thanks so much Jordan. This is David Roberson with Leyton USA (www.leyton.com). Leyton is an international R&D Tax consulting firm. We’re in, we’re in a, we’ve been around for 22 years, we’re in 10 different countries and we specialize in helping businesses of all kinds, monetize their R&D Tax Credits and get the, get the credits and incentives that they deserve that are in the tax code for there. For the taking a, I myself am a tax attorney by background. I’ve been practicing for about eight or nine years and in in this field civically for the past five. I’m working on everything from audit defense too, you know, doing tech studies for startups, fortune 1000 level country companies and all the way up through to your, you know, your big boys, but a love what I do and I’m really happy to be with Leyton (www.leyton.com) and thanks again to Jordan. Anders?

Anders: 1:58

Yes. My name is Anders Breton and I’m on software technical consultant so I help here at the consulting team to basically speak with clients about technical and software stacks. Kind of go through the software and understand where are the R&D falls and trying to help them maximize their claim.

Jordan: 2:14

Excellent. Well, I’m really excited to have you guys on the podcast today because, um, we’ve started to introduce, um, our clients to you guys, um, because, and I, and I’m particularly excited to have you on the podcast today because there really, there are a couple of different people who listen to this podcast. Number one, we’ve got Podio partners out there. If you’re listening, um, these are, this is a great opportunity to introduce Leyton to your clients as part of your sales process because actually it can help you in the sales process because you can be getting money back for your clients. And also, if you’re actually building out Podio for your own company, this is an opportunity to realize that the stuff that you do in Podio or that you implement in Podio almost always involves the spoke elements that are very, very, um, very, very, uh, high up in the R&D tax credit scheme. And I think a lot of people listening right now, guys probably won’t know much about R&D Tax Credits. And I’m not an expert. So if you guys, can you guys give a bit of a layman’s terms as to what it means and why as a business I care about it. And as for software, maybe as someone who’s invested in software or building software for other people, what does it mean?

David: 3:25

Sure. Absolutely Jordan. So the R&D Tax Credit is a, it in long in long form is the research and development Tax Credit have been around since 1981. It was instituted by Ronald Reagan and the Reagan administration back in the day to help, uh, US businesses compete with at that point, the expansion from the Japanese sector and kind of, uh, encourage American businesses to invest, reinvest in themselves, reinvest their, their dollars that they’ve spent on, on activities that were designed to push things for, push their products, push their processes a forward and to, uh, to become, uh, an improved or even brand new types of methodologies that they were employing in their business now as to, uh, and of course, as, as any congressional legislation. Um, it was, it was, the R&D tax credit was pushed forward every, you know, every two years they had to renew it. Um, and then finally in 2015 and the Obama administration made it, uh, made the R&D tax credit part of the PATH act, the Protecting Americans against Tax Hikes act. And now, so now the R&D tax credit is permanently a part of the tax code and it can be, uh, can be relied upon as part of your, you know, your cap ex or your operating expenses model, you know, going forward. Um, now, you know, a lot of people hear R&D and they think scientists in lab coats. And while that is true, you know, it’s not limited just to that R&D was designed by the Congress to be very expansive and to incorporate elements of every American industry in every industry that’s out there, whether it’s, um, manufacturing, bio tech, software, Fintech, any kind of, anything that’s, um, that’s going on, that’s a going concern in the US is elegant for this. It’s just a matter of whether or not the activities that the company is doing. Um, meet the, what we call the four part test. And uh, again as Jordan mentioned, I’ll try to put this in layman’s terms in the interpret the IRS code code words a little bit for the benefit of everybody listening. Um, so essentially it comes down to an examination of what, what is the business doing, what, what are you doing on a day to day? And we take that and we look at it against a, what we call the four part test. The four part test is that there is an first that there’s a new or improved business component. Now, business components, IRS language, that means you have a new or improved product, a process, a technique, a formula, a software or an invention. And that means something that is either brand new to you or you’re improving a, an aspect of you’re proving a feature, you’re adding functionality of some time. Doesn’t have to be brand new to the, to the world. This has to be something new, new to you and or something that you’re improving as to either a tool that’s used in your business or a something that’s held for sale, lease or license to your clients. Now the second part of the test is that there is some level of uncertainty that needs to be eliminated. And that means that you’re looking at a situation where you’re not entirely 100% sure how this thing is going to look once you get it done or how it’s gonna operate when you get it done, but you want to try it. So in that case, you know you’re kind of going out on a limb a little bit. You’re being, you’re being bold, which is what the government wants to reward and, but you have some uncertainty about it. You know, you might know your parameters, you might know your metrics, but how are we going to get there? That’s the question and the answer that question. You have the third part of the test, which is that there is an evaluation of alternatives. And again, that means that that’s again a bunch of big words. What it actually means, that you try different things and different methodologies to accomplish the goal of eliminating that uncertainty, meaning different, uh, different approaches, different, um, coding, perhaps different combinations of, of steps in a production, production line, et Cetera, et cetera. Um, and then ultimately come to the fourth part of the test, which is that there is principles of the hard science being involved. And so that, that doesn’t mean you have to be, you know, doing science experiments in the laboratory. But what it means is that you’re applying principles of engineering and computer science, um, chemistry, biochemisty. Basically the idea there was that they don’t want people to be just doing market surveys or, or just doing, you know, how do you feel about pink versus blue as a color scheme for this item? Um, that sort of, that sort of situation. So, uh, so to wrap it up, the R&D tax credit then is essentially you’re using principles of the hard sciences to evaluate different alternative methodologies of getting something done. So where you have eliminated that uncertainty that you had at the beginning and you’ve managed to deliver a new or improved product process or software.

Jordan: 7:57

So, so my company, you know, Gamechangers (www.wearegamechangers.com), we, we are a Podio partner, which means that we go into people’s businesses and we, you know, from scratch design software systems using the Podio ecosystem, Citrix, Podio ecosystem. And when we do that, we’re always brought in, um, because they’ve tried to do something or they’re trying, like if something’s not working, they’re trying, they’ve tried different things and then they find this and they’re like, well, maybe this is the way we can do it. And we have no idea necessarily, we don’t know where we’re going to get to when we start because we don’t know how it’s supposed to work yet. So, and I think that’s an experience that a lot of Podio partners have. So is that the sort of thing you’re talking about where there needs to be some level of uncertainty? We’re going through and say, I’ve got a company that they’ve got, uh, they’ve, they want to make their manufacturer or their or logistics set up more efficient and they’ve tried lots of different options and now we’re going to figure out a new way of doing it, using our technology, using our platform. Does that kind of meet what you’re talking about? Is that the kind of thing you’re talking about?

Anders: 9:12

Yeah, correct. Then, you know, R&D is All about developing new solutions or improve to specific domain. Then it, it can be in any sort of domain and media, agriculture or um, the, the, the real estate, financial and all that kind of stuff. But you’re developing these softwares and especially when there be bespoke, that’s something that, you know, in the software Development Lifecycle, you have a detailed plan, you develop it to kind of out then you out there and maintain it to like this sort of software. And you go through all the stages of planning, designing, building, testing, and then deploying it. So that’s an exact representation with that.

David: 9:49

Yeah. And, and to, to answer your question a little bit more detailed during civically to watch the situation you’re describing, your, well, you’re offering is that’s, that’s, that’s your service. That’s your function as a business. That’s what you’re offering to your clients is that, is that development aspect. And with the, with the R&D Tax Credits that that fits right in, right in line with the, with what you know it’s intended to. It’s intended to incentivize.

Jordan: 10:15

Yeah. And I think that’s really exciting and why I wanted you guys on this podcast is because, um, you know, and by the way, for everybody listening, we’re going to put a link into the podcast of how you can submit and get these guys to contact you. Um, getting Leyton to contact you directly so that if you’re someone who’s building Podio for your own company, say, and you’re learning and you’re developing new processes, get in touch with them. If you are a Podio partner and you’re bringing this process and this discovery in this, this implementation to a bunch of clients, it’s an ideal opportunity for you to get in. Get in touch. So you can save your client’s money and they’re going to want to buy more from you. So I’m going to put link in the podcast for you. Um, now, so let me give this. So we do a lot of work in real estate. You mentioned real estate there. Um, we do a lot of work in real estate where what we’re trying to do, you know, all these companies are trying to just improve by, by small margins. That makes sense. So when we’re, when we’re building a new process, we’re not necessarily reinventing the world. We’re improving by a small enough margin that it makes them get better. Are Those small margins okay? Or are you talking about everything’s gotta be complete, reinvented?

David: 11:26

No, actually entirely the opposite. What we, what we like to say, that doesn’t have to be revolutionary. It just has to be evolutionary. And going back to that first part of that four part test that can be new or improved, that means it doesn’t have to be new to the world. It just has to be something that is an improvement, that it’s an incremental step in the right, in the, uh, they’re in the right direction, if you will. Or it’s adding some kind of functionality, some kind of performance. We’re proving some kind of efficiency. Um, it doesn’t have to be, you don’t have to reinvent the wheel.

Jordan: 11:56

So it’s, it’s an improvement to my company. The fact that other people may do it already, it’s not revolution. It doesn’t matter. It’s the fact that I’m investing in my company to be better.

David: 12:07

Yeah, it does. It doesn’t have to be new. It doesn’t have to be a new to the world is has to be new to you, you and your company and you

Anders: 12:15

and in software, you know, you always go through these iterations and through these iterations you’re trying to improve, you know, version one, 1.5, 2.0. And that’s what’s really great because you are going to go through these technical challenges and that’s the key part of it.

Jordan: 12:29

And, um, so what about like, you know, you got, you know, software is a great example of you as you just mentioned that it’s a continuous development. You’re very rarely ever stopping. You know, we have clients who will do a phase and then they’ll be like, ah, we’ve got something else you want to improve or now we want to take the thing we did and do it better because we’ve, we’ve, we, we think we can get better at it. So is this something that’s an ongoing thing for people or do they have a one shot deal,

David: 12:59

Jordan, just to get some clarity on that? Or are you talking about a situation where they can continue to claim it or is it just like one, one year they can claim or is it,

Jordan: 13:08

we’ll get, like if I’m building, if I, if I’m a company that’s investing my processes and getting better year on year, do I continue to be allowed to get these sorts of R&D credits or do I have one shot of it and that’s it?

David: 13:25

no, it’s an, it’s an ongoing thing. I, in fact, um, especially now with it being a permanent part of the tax code, um, it can be something that a year on year is, is available. They can be part of your planning. You know, if you know you’re going to spend this much x amount of dollars on these types of activities, you can even then calculate with our help, you can then calculate the, um, the amount of, of, of refunds you can expect. And so that can be another, another cash flow item that you can depend on. And like I said, there no limitation on, on years or, or, or dollars. There’s no little no limitation on dollars either for that matter. Um, so you can claim that year on year and if you’re increasing your activities and you’re constantly investing those those dollars into, um, into your company, then you can, you can constantly claim it. I mean, it’s, it’s permanent and it’s here to stay. I’m one of the things that might be good to talk about right now is, um, the, the cost categories that can be claimed. Is that all right?

Jordan: 14:23

Please?

David: 14:24

Yeah, yeah, sure. So for example, um, we talked about the four part test, but we also have four different cost categories that you can claim. So you can claim salaries and wages of your employees that are doing R&D activities. And that means people that are either directly engaged in the programming or the engineer, computer engineering, you claim people that are directly supporting it. Um, as far as you know, even on an administrative sort of level and then folks that are directly supervising. So you can, you can kind of run the gamut from, you know, a CEO or a CTO all the way through to your line engineers and then even your junior techs and so on, so forth. Um, and that those dollars go right into the bucket of qualified costs. You can also claim, um, contractor costs. If we bring somebody in on a 1099 basis or an ad hoc basis or a consultative basis and pay them to do a specific item or specific specialty that they’re very adept at, that those costs can be claimed as well. And then, um, interestingly enough, you can also claim, um, cloud services costs. So if you’re claiming, if you’re using AWS or as you are for, uh, for development purposes, you know, as, as a test environment or UHC or Qa type of environment or any kind of a, any kind of a development stage, those costs can be claimed as well. So there’s, there’s quite a few, um, two items that can be claimed in, in this situation. Yeah.

Jordan: 15:42

May I ask a question about that then? I’m never going to understand the tax code of the United States and I know I, to be honest, I don’t want it. Um, but so here’s, let me just go off when you just said, my company, we go and we build, we engage with a company may spend 20 grand for us to build a system, right? $20,000 and in that, but part of that is we’re also, we’re building the system in the Citrix Podio where there’s licensing needs, right? So say they’ve got 50 people using it, they may be spending $7,000 a year on the cloud architecture of Podio and that a couple thousand on some other architects, bits of software cloud. That architecture that we need. Um, is does that mean that there’s a potential for claiming both on our fees like that on the, their money they’ve invested in building these new processes and doing this and the licenses? Or do they really mean just if I’ve got like Amazon web service to host stuff? Like is it, is it licenses or is it just, you know, could it be that that base is like a subscription of buying licenses to Podio so that we can build things into it?

David: 16:59

If the license, if the licenses are seen as a subscription, as, as giving access to the web space or the services, that’s entirely different than actually, you know, purchasing a piece of software. Um, if you’re looking at a situation where your, your license, you know, your licensing, um, you know, 50 to 50 users on one software, that’s not necessarily the same thing as what we’re talking about. The, the code is very specific as to it being the rental or back in the back in the day. It was, no, it was made in the 80s when the computers were the size of the room I’m sitting in right now. Um, and, and it was designed to, for the idea of the rent or the rental or usage of computers, space meaning actually going somewhere and like using a computer cause no one in the 80s, not anybody any bit anybody really had or desktops or what have you. Um, but what does it take and what, how that has sort of changed in the modern era is, you know, if you’re leasing a computer space or an environment, you know, externally and remotely those costs qualify. But the licensing generally you see that it’s treated as either a normal operating costs as, as part of the business or are, you can see that as sometimes as a, as a capitalized asset of some kind. But those are the, to answer your question, uh, the licenses would not be qualified,

Jordan: 18:18

but for instance, if there, if we can build together a project and they spend $25,000 on us developing all these new processes and improving things, that $25,000 they may be, that may qualify.

David: 18:34

Yes, that’s correct. Yeah.

Jordan: 18:35

That’s, I mean, you can’t have everything. I mean, uh, like, you know, I mean, now I can certainly see the points get, there’s a lot of projects we do where we’re trying to figure out how to do a very complex process and we have to actually get server space to figure out like, do we have to do it over here? That may apply, but I totally understand that Podio licenses of software licenses with just like that’s cost to business. That’s

David: 19:00

right. Right. And the scenario that you just described of, you know, getting some space to test us out or to kind of run trial that would call it, that would qualify.

Jordan: 19:10

Yeah, I totally understand that. Um, and so my other understanding of this is that there is a certain element of retrograde you can do looking backwards to, uh, like, so I’ve got clients here who has been with us for seven years. Um, but I’ve also got quite a lot of clients who we maybe started working with a year ago or a year and a half ago and built systems. My understanding is that R&D Tax Credits, you can claim back a bit as well. Is that true?

David: 19:41

Yeah, that’s, that’s actually, that’s definitely correct. The IRS allows a three year look back from the date of filing. So you, so for example, right now, um, most people would have filed their 2016 tax returns or sorry, the 2015 tax returns in 2016 and 2016 we would have been filed in 2017. So right now. Yeah. And that’s a little bit, that’s a little bit of a, it’s a little bit of a complex thing, but don’t worry, we got you in good hands. Um, but basically basically you have a three year look back plus your career, let’s put it that way. Um, and so that means you can actually look back and claim those three years of cost, um, and kind of get four years all done in one fell swoop. Now another interesting thing about the 2015, uh, amendment is that they’ve now allowed you to use the R&D tax credit against payroll taxes. So even if you’re not making a profit, you can actually use your, your R&D credit against your payroll taxes. So you, I mean, if you’re paying the right people the right amount to keep them working for you, you’re going to be running into money, you’re going to have payroll taxes. So that’s a, that’s a new wrinkle that that makes it really a access, make the R&D credit credit really accessible, and really a useful for like your startups.

Jordan: 20:53

Wow. Okay. Well listen, um, we’ve only got a few minutes left. Um, I think this is fascinating and I know a lot of people are going to be interested because I will be putting links in here so you can directly contact these guys and um, and they’ll be able to add, set to speak with you. But let’s just quickly understand, so from a business model point of view, um, I, you know, I’m going to, I, you know, I’m, I’ve already engaged with you guys, um, and I’m bringing my clients to you, but do you know what do I have to pay? Do people have to pay a fee to, you know, like what’s the structure? I mean, everything sounds too good to be true here. So what’s the catch?

David: 21:27

Well, I mean, honestly, I don’t think there really is much of a catch at all. I mean, obviously we’ve got to keep our doors open to, hey, pay for the right people to do the work or the way we work is we always want you to be, wants everyone that works with us to be cash positive. So what we do is we identify a credit benefit and then whatever that benefit is, um, we usually charge a 25% percent fee of that. So basically you win. We win, we win as well. Um, and, and it works out pretty well for everybody. Obviously, you know, we, uh, we’re a big fan of startups and, and new folks, so if there’s cash, if there’s cash flow pro, uh, issues, you know, we’re happy to chat and more detailed, but that’s kind of how our, how our paycheck gets it gets made.

Jordan: 22:17

But, but what you’re also saying is that it’s not like people have to be worried about contacting you that you’re going to be like, oh, by the way, you’re going to owe, you know? Oh yeah, we’ll look at this, but it’s going to cost you 10 grand for us to get started.

David: 22:29

Yeah. Don’t know. And, uh, interesting. Jordan, thanks for bringing that up. Um, we actually do an initial assessment that’s complimentary. Um, so we’ll, we’ll sit down and talk to you and I’m have to look over some things in broad detail and come to an agreement of, hey, this is how much we think you’re going to be able to get. And then we both decided mutually notice that. Is that juice worth the squeeze? You know, are we gonna move forward? And then, and then we, uh, that’s how we roll.

Jordan: 22:55

I don’t think I’ve ever heard that expression. I like it. I’m going to use it. Um, well listen guys, I mean that is fantastic. What I’m going to do, because you know, I’m really passionate that I think this is a great opportunity for anybody building in Podio. Um, and I’ve actually told me one more thing, my experience of you guys and as a company, but also as this process R&D process, I’ve been around technology for 10 years. So I’ve kind of seen it, but is it also true that a lot of times, like I’ve introduced some companies to, to, you know, people like Leyton (www.leyton.com) and not all because I said, well, what we’re doing qualifies. But when you get in there, you see other things as well, so you can help them uncover even more stuff. Is that something that usually happens?

David: 23:40

That’s exactly why, why we exist and why we, why we have, uh, you know, going concern as, as the businesses is gone. Um, our team is, is, has enough experience and enough knowledge of both industry, of all of the industry as well as the law to kind of uncover those, those hidden gems and turn over those rocks and find out, oh, while you’re claiming this as a cost category, but it actually qualifies in this sense. And so why don’t we claim that and that you’d be surprised how much extra dollars there, there, there are to be found.

Jordan: 24:06

Excellent. Well, um, I’m, I’m usually say, I mean these guys, Leyton (www.leyton.com), I’m guy. I’m going to be posting some links on my website, on the page for the podcast also in the podcast notes. Um, and there’ll be a, a form that you can fill in, which will very easily just get you in contact directly with the right offices because of course they work over different countries. So I’m, I’m embedding that and to try to facilitate this because I believe for every Podio Partner out there, this is an opportunity for you to make your sales easier. How much easier is it to sell If you’re saying, mate, I’m going to charge $25 grand and you’re going to be able to claim most of that off your tax like that, that makes a sales cycle way easier. Um, and for those of you building your own systems in Podio listening here, this is an opportunity for you to take that investment that you’re building into your company and actually turn it around and save some cash and get some cash out of it. Um, Leyton, they’re a fantastic company. Um, and um, you know, we, we really believe in them. We introduce our clients to them and I got guys, I just want to say how much I appreciate you taking some time to explain this to the Podio community because I think it’s usually valuable. Do you have any final things you want to just mention?

David: 25:20

Every business, every business is eligible. Every business is different. We’d love to work with you and, um, get you to the tax dollars you deserve.

Jordan: 25:28

Excellent. Listen guys, take a look at the link. Um, get, get in touch with them. As they said. There’s no upfront cost. They do a free assessment. it is something that I really strongly recommend everybody do. Save you money, save your clients, uh, money. Um, guys, I appreciate you being here. Have a fantastic week and, uh, you know, I’m signing off for today. Thanks very much.

Speaker 3: 25:53

Thank you Jordan. Appreciate it. Have a good one.

Speaker 1: 25:56

You’ve been listening to supercharged with Jordan Samuel plumbing. Subscribe today on Itunes, Google play or Spotify for your weekly dive into how you can supercharge your business by making it powered by Podio. Be sure to check out our website. We are game changers.com where you can learn more and arrange a 30 minute call with Jordan. Dal, do you understand how Podio supercharges you?