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CWA recently pushed a blog to its clients about the R&D tax credit. There are less scrupulous companies in the field and we’re grateful for this opportunity to distinguish ourselves and provide additional information about this valuable credit.
1. Research and Development Aspects of Orthodontics
Accountants are numbers-focused – they don’t typically have a biological science background. In the accounting world, 2+2 will equal 4 every time. That kind of predictability is just not the case in patient care. When we speak with accounting groups, we always spend time explaining that there is uncertainty in healthcare. Most of our client referrals come from great accounting groups, so the concept isn't that foreign. I recently spoke with a CWA partner at the OP Summit in Denver. His comment to me about orthodontics was something like, "it's just wires and brackets, is there really any question there?" Granted, for those of us in healthcare, that’s a crazy statement, but it’s that accounting 2+2 perspective. I was able to explain a bit more about what you do as orthodontists and the many complexities you deal with daily.
There are almost as many combinations of bracket types, prescriptions, wire alloys, wire sequences, adhesive processes, and modified care patterns as there are orthodontists. And why isn’t there a single best practice in orthodontics? For the same reason that there is a ton of research in the area – it’s a complex system full of uncertainty and innovation. No clinician knows what the one best combination is and there are always new options hitting the market. You can evaluate existing research, but sample sizes are typically small enough that they are of limited value or don’t take into account other aspects of your care. In the end, it’s on you to develop your own techniques, incorporating changes through a systematic process of trial and error. This is a description of R&D consistent with the IRS guidelines.
2. Recent Changes
A little while back, I did a podcast for the Orthopreneurs group and we discussed the recent addition of the tax credit to the “Dirty Dozen” list. As background, there are over 15 million businesses that use this credit every year for over $20B in credits. Many of these companies are not strictly science-based, nor are their credit claims well developed. This is buttressed by the numerous tax law cases where a variety of taxpayers across entities have been deemed to have engaged in qualified research. However, the congressional intent is clear: innovation is good for U.S. businesses and tax credits are available to encourage innovation. This new IRS label doesn’t mean that the credit is any less viable in healthcare this year than it was last year.
At Dr. Tax Credit, we approach this credit through purposeful design with a focus on defensibility that sets us apart in the industry:
We identify science-based variables in your qualifying techniques, accurately describe what you do, and directly correlate it to the threshold tests provided by the IRS.
We work with an NIH research sponsor to validate the variables against other ongoing research (we have even created registered clinical trials for our doctors who want to participate at that level).
We have developed an app with thousands of enrolled patients that allows doctors to record outcomes and assess the benefit of their changes.
From there, we prepare extremely detailed reports. The IRS recently provided additional guidance on how to identify and report qualifying activities. They now allow us to provide a summary report of what you do with each tax return filing to [in their words], 'perfect' the R&D claim. This change provides a great opportunity to fortify your tax position and strengthen your entitlement to this extraordinary benefit.
3. A “Risky” Tax Strategy?
it is interesting to me when people call this a "risky" tax strategy - the data to date does not support this statement. While it’s true we don’t know what next year will bring, we do know that the technical aspects of what you do are more complex than other traditionally qualifying industries (i.e., bakeries, construction, farming, etc.).
I have yet to find a healthcare provider that has been audited because of the R&D tax credit. We check in with other companies that provide R&D calculations in healthcare. Of the millions of dollars of dental-related R&D credits filed, we are unaware of a single audit that was triggered by the R&D tax credit or any denied R&D credits. If that changes, we’ll be the first to let you know, but we haven’t seen any indication yet. From a statistical analysis, we’re talking about a pretty low-risk strategy.
If you do happen to be that first orthodontist who receives a request for additional information or audit, our experienced legal and accounting team provides responses to defend the credit – it’s all included in our fee.
If you’d like to learn more or see if the value of this credit is worth considering in your practice, reach out! We provide a no-cost informational call that will give you the background you need to decide how you want to approach your taxes and these valuable credits.
We don't file taxes, but if you'd like to connect with an accountant that is familiar with the credit and uses it regularly with their clients, we'd be happy to send you a list of great accounting teams we've worked with. Visit our website (www.drtaxcredit.com), call us at 801-318-5097, or schedule directly through this link. We look forward to talking with you!