R&D Tax Credit: New, Improved, and Permanent

The Research and Development Tax credit is useful for companies to reduce their Federal tax bills. The R&D tax credits were introduced in 1981 to provide tax incentives to companies incurring research expenses. It was primarily done to encourage companies to spend on development activities like new and improved products, techniques, processes, software, formula and inventions and set up factories in the US.

The Background

After the initial introduction of the R&D tax credits, it lapsed in 2 years which discouraged businesses from setting up ventures as there was uncertainty about the tax credits being reintroduced. Between the periods of 1981 to 2015, the R&D credit in Texas and rest of the United States was renewed around twenty times.

Another drawback of old R&D tax credit scheme was it was only available for bigger companies and their use was limited to companies that were categorized as S corporations, limited liability partnerships, limited liability companies, and pass through entities. Such companies did not owe federal tax and paid Alternate minimum tax.

The New and Improved R&D tax Credits

The PATH (Protecting Americans from Tax Hikes) Act of 2015 has removed the uncertainty and assured the businesses that the R&D tax credit is here to stay and will remain viable for future years. The new provision in the PATH Act allows the SMBs and startups to take advantage of tax credits immediately.

Takeaway for SMBs and Startups

As per the new legislation, the R&D tax credit enables business with less than $50 million in average gross receipts for three preceding years to use the tax credits to offset AMT (Alternative Minimum Tax).

The new R&D tax credit also allows very small businesses having less than $5million revenue to claim a credit up to $250,000 against payroll taxes. This new point is great for startups that are not yet profitable but are paying payroll taxes. it will help the startups to get back tax refund and infuse the money back in businesses to sustain and grow to become profitable.

Carry Forward Unused Credits

The unused tax credits can be carried forward up to 20 years and companies can show the unused tax credits on their financial statements. This aspect of carrying forward credits is great for startups that are looking for a potential buyer or intend to go public by launching an IPO.

Investors will be attracted towards startups which have unused R&D tax credits as it will show the innovative nature of the business and also show the company will be in a position to reap these tax credits and reduce taxes once it becomes profitable.

The Traditional Credit Calculation

Consider an XYZ company, an Eligible Small Business generated $100,000 in R&D tax credits in the financial year 2016. The Regular tax eligibility of the business will be $300,000 and the AMT liability will be around $250,000. Before the new legislation was introduced, the XYX company could only claim $50,000 in R&D tax credits which represented the difference between its Regular Tax liability ($300, 00) and AMT liability ($250,000).

Under the new regulation, the XYZ company can use the R&D tax credits to offset AMT liability and it can use the entire credit of $100,000 to offset its AMT liability.

The Startup Credit Calculation

The new regulation establishes a fixed-base percentage calculation for companies that are incorporated before 1983 or has fewer than 3 years of qualified research expenditures between January 1, 1984, and December 31, 1988. the fixed base percentage is calculated in the following manner.

  •         3% of-of 1st five taxable years beginning after December 31, 1993, in which the company has qualified research expenses
  •         For the 6th year, 1/6th of the percentage of aggregate qualified research expenses of 4th and 5th year
  •         For the 7th year, 1/3rd of the percentage of aggregate qualified research expenses of 5th year and 6th year
  •         For the 8th year, 1/2 of the percentage of aggregate qualified research expenses of 5th, 6th and 7th year

If you have been missing out R&D tax credits for any reason. Now is the time to claim your share of the $10 billion tax credit offered by the Federal government each year.  Provided your company has maintained proper documentation of the research activities, there is nothing stopping you from receiving the R&D tax credits.

Have you applied for R&D tax credits in this financial year? Leave your comments below.

Getting the Most Out of the Research and Development Tax Credit

The Federal R&D tax credits were introduced by the US government to encourage invention and boost investment in the country. According to 2014 R&D credits report, over 100,000 taxpayers claimed more than $12 billion for research work performed by their companies on daily basis.

The big surprise is a significant portion of the credit dollars were claimed by Fortune 500 companies and many SME’s did not apply for the R&D credit though their research work was eligible. Here are some facts and guidelines that will help you get most out of the research and development tax credit.

Know What Qualifies

The research conducted in your company should meet the criteria specified in R&D credit QREs (Qualified Research Expense) qualifying guidelines for receiving credit. The research should be technical in nature and integrate into one of the sciences (Physics, Chemistry, and Biology). Research activities that involve the use of computational design tools that helped you create a new functionality or improve any existing functionality also qualify for receiving R&D tax credits.

Similarly, process improvements that focus on enhancing characteristics like reliability, durability, or designing the product for better energy efficiency are also considered credit worthy. Experimentation is also included in qualified research activities and if your company has experimented to consider an alternative design process or different design to reduce material costs then your activities fall under QRE’s.

The R&D credit guidelines allow you to claim tax credits against modest research or new takes that might be very common in nature for your company. For example, activities like improving the natural light in the hospital for better healing can also give you R&D tax credits.

What Does Not Qualify?

The R&D tax credits cannot be claimed for research activities that were performed after the product is developed successfully or design produced commercially. Activities like duplication or adaptation of existing business component, studies, surveys conducted to improve organization’s internal operations are not QRE’s.

How Is the R&D Credit Value Calculated?

There are three types of research credits for companies. Each type of research credit is calculated differently.

Traditional Credit

The Traditional Credit is given to companies that were incorporated prior to January 1st, 1984, and have more than three tax years with research expenditures from January 1st, 1984, to January 1st, 1988. The fixed-base percentage is calculated by dividing the taxpayer’s aggregate QRE by the aggregate gross receipts for taxable years starting from 1983 but before January 1st, 1989. Following is an example that shows the traditional credit calculation.

Company A has total $270 QRE and the gross receipts for the 1984-1988 base period is $5,750. Hence the

· Fixed base percentage will be -270/5750 X100 = 4.7%

· Company’s gross receipts over four prior years is 1,425

· Base amount will be 4.7% of 1,425 = $67

· Company ‘s QRE for 2015 is $100

· The Creditable amount for 2015 is 100 -67 = $33

· Company A’s R&D credit amount for 2015 is 20% of 33 = $6.6

Alternative Simple Credit

Companies that cannot generate fixed base percentages or substantiate qualified research expenditures for the traditional or startup methods can calculate the credit they can receive by Alternative Simple Credit. This calculation can provide credit up to 12% of QRE’s that exceed 50% of the average QRE’s for three preceding taxable years. Here is an example which shows the calculation of Alternative Simple Credit.

· Company B’s average QREs for three prior years was $92

· The base amount will be 50% of $92 = $46

· Company’s current year QRE is $100

· The Alternative Simple Credit Company B can claim 12% of $54( 100-46)= $6.48

Taking Action

R&D credits experts say claiming the credit is quite simple. All you need to do is show the qualifying work. Given you have strong documentation practices; it would be easy for you to back up the R&D expenses claim.

As you can see the eligibility rules of R&D tax credits are clear and explanatory. If you are still having any doubts, you can seek help of R&D tax consultants to apply for R&D credits.

Benefits of R&D Tax Loans

Research and Development is an area where not many companies can venture. This is because there is a huge amount of risk involved in running such business. There are two types of risks involved:

o  Capital expenditure: There is not deterministic expenditure on such activities. There is also no time line in which there could be realistic output.

o  Results: There is no guarantee on the results that the research activities could yield at the end of the research cycle. The results could be positive or negative which could result in great losses.

But such activities are the need of the hour and they help in the economic and financial development of the country. They also help in wealth creation and creating valuable intellectual property.

Hence to encourage such research activities, the government of Australia, along with the AusIndustry (have come up with a scheme called the R&D tax incentive. With the help of this scheme you can avail a R&D tax finance to fund your R&D activities. Your research should be in the area of technological development and it should be beneficial to the common masses. Also, if your research activity is already funded by any other parent company or agency then the amount of Research and Development tax credit that you can avail would vary.

To avail this facility, you need to be a regular payee of the corporate taxes to the government. It does not matter if you a SME (Small and Medium Enterprise) or a large company. You could also be a start-up venture – your research activities can claim the R&D tax credit. You need to register your project and activities with the AusIndustry.

You can claim for the R&D tax credit along with the corporate taxes itself. All you need to do is to provide a written proof to the government about the research activities that you are undertaking, the persons involved and the about of capital expenditure that you are incurring. This is applicable to both profit making companies and to the companies that are incurring losses. If you are eligible for this benefit you can avail this facility in two forms:

o  The reduction of your corporate taxes

o  In the form of cash flow between the government and your company

Before availing the R&D tax credit from the government, your company could be in need of financial assistance. The government has thus made provisions for the same. This is called the R&D tax loans.

benefits-of-rd-tax-loansThere are some financial agencies that are ready to fund your research and development activities. They provide financial assistance in the form of loans. With the help of these loans, you can:

o  Run your business efficiently without having to think about further fund raising

o  Plan for commercialization or expansion of your research

o  Add additional resources for working on the project

The R&D tax loan is given by the financial agency with a set of terms and conditions. These terms and conditions are specific to the research activities that you are conducting. Read the offer documents carefully before signing in for any agreement with the funding agency. Also, there could be a rate of interest at which you need to repay this loan. However, the R&D tax loans can be repaid only after you avail the R&D tax credit from the government.

Five Facts About R&D Tax Relief That Will Blow Your Mind

All companies that are working gin the research and development sectors undergo a huge risk. The risk is in terms of capital expenditure and also in terms of the end results. But such research activities are very much essential for an economically stable country. Hence the government of UK has come up with some schemes to help such companies which are working in the research fields. One such scheme is the Research and Development Tax Relief scheme.

five-facts-about-rd-tax-relief-that-will-blow-your-mindHere are some facts about the R&D tax scheme which will blow your mind.

1.  Medical research/manufacturing advancements can be claimed: It is a general understanding that only companies that are working in software development are eligible for this claim. But, wrong! Technological development in any field can be claimed with the help of this R&D tax relief scheme. This means that, if your research is in the area of medicine or manufacturing advancements, you can still go ahead and claim your R&D tax credit incentive from the government. There are companies which are working on gaming, architectural advancement and medicinal field who have successfully claimed the R&D Tax Relief.

2.  It is easy to claim the R&D Tax Relief: It is a misconception that claiming the R&D tax relief is a tedious process. Most companies refrain from claiming it because of the time and resources that it consumes to do the process. On the contrary, it is actually very easy to claim the monetary benefit. All you need to do is to fill in the form along with the CT (Corporate Taxes). You need to provide a technical write-up to the government. This technical write up should contain the problem that you research activity is addressing. It should mention the persons involved in the activity and the overall expenditure incurred. You will also be surprised to know that there are many agencies which can assist you with the entire claim process if you find this difficult and time consuming.

3.  SMEs are also eligible for this claim: Generally large companies have dedicated resources that take care of the expenditure and the claim part of the business. But for SMEs and start-ups this process might seem daunting. You should be aware that SMEs and start-ups can also avail from the scheme. In fact, starting from April 2015, the SMEs can claim up to 230% of the total research expenditure with the help of this scheme. This is mainly to encourage small companies to take up the research activities.

4.  You can run your business more efficiently: The amount of R&D tax loan that you can get from the government can be used only for research purposes. This means that with the help of the amount that you avail; you can run your research activities more efficiently. You get an advantage to add more dedicated resources to work on the research activities. You will also be able to provide a stringent time line for the activities to take shape and yield desired results.

5.  It is a lot of money:  The amount of money that you can get as a refund from the  scheme is quite substantial. This means that the amount of resource and time that you spend on making this claim will make is worth your effort. You should remember that even if you take professional help during the claim process, the amount that you get at the end of the whole process through the government scheme will suffice your total capital expenditure. Hence claiming for the R&D tax relief is really worth the time and effort.

Essential Tips for an Effective R&D Tax Funding Strategy

Research and development are key to a stable economy of the country. Research and development are oriented towards better growth which thus leads to wealth creation as well. Companies/business working on such research activities is needed for any country. The government of Australia hence promotes and encourages such developmental activities – through a number of schemes which boosts research and development in the technological sector. One such scheme is the R&D tax credit incentive.

If your company is working on one such activity, here are some tips that you can utilize to run your research activities more efficiently.

Before I go ahead jotting down the tips, here are some jargons you ought to know!

a)  R&D Tax Credit: This is the credit facility that is provided by the government to companies that are working on research activities. This is a joint venture between the Australian government and the AusIndustry (working on behalf of Innovative Australia).

b)  R&D Tax Funding Strategy: To avail the R&D tax credit from the government you need to satisfy certain terms and conditions that are set from the authorities. So, before you claim for the credit, you will need money to effectively run your project. There are some companies that are ready to fund for your research activities. Availing such a fund and utilizing these for your research activities is called the R&D tax funding strategy.

Essential Tips for an Effective R&D Tax Funding Strategy

c)  R&D Tax Loan: The companies that are ready to fund for the R&D activities, do so by providing some amount of money in the form of loan. The loan that your company avails, has to be repaid once you are eligible and avail the R&D tax credit from the government. The R&D tax loan is given to your company with a specified rate of interest.

Now that you are familiar with the jargons, read on some essential tips to effectively utilize the R&D tax funding.

1.  Research Qualification: The first and the most important aspect of R&D tax credit, is to qualify for the same. Here are some general guidelines to make sure that your company is actually working and qualifying for the R&D tax credit from the government:

a.  Your company should be a regular payee of the CT (Corporate Taxes). However, remember that this scheme is applicable to SME (Small and Medium Enterprise), large companies and start-up ventures too.

b.  Your research activities should not already be known to the general public and it should not be easily deducible to equally competent technicians.

c.  The research should move from experiments, observations and analysis. The results of which should help the larger section of population.

2.  Research Funds: It is not important that your research activities should always show a positive result. The experiments might fail. But if your activities are research and developmental in nature you can still avail the credit facility. The R&D tax loans that you avail from companies, should be purely utilized only for research activities. It should not be utilized for other projects (if any) run by your company.

3.  Records: Keeping records of all your day to day transactions is very important. The AusIndustry would require that you submit all the related records for the previous five years. You need to keep record of your research activities, number of people involved, the problem statement and who your research is enabling in solving this problem, the competent individuals involved in this activity and the capital expenditure.

4.  Terms and Conditions: Not all company’ funding would suffice your specific research requirement. All R&D Tax funding strategies come with a set of terms and conditions. It is important to go through all the terms and conditions and understand the same before you go ahead and sign a contract with the funding company.

Things You Should Know Before Claiming R&D Tax Relief

What is R & D tax relief?

Scientifically creative and innovative companies are the need of the hour since these companies help in the advancement of the country’s economy. But, it is not easy for any company to work in this field since the risk involved in taking up such projects is serious. The capital expenditure is high, but the results are not determinable. Hence to encourage companies to work on research activities, the government has come up with an initiative called the ‘R & D tax relief. If your company is one such, then read on further, to know all about the R&D tax relief.

Your eligibility criteria

You avail the credit facility from the government; you have to meet the eligibility criteria set by the HMRC.

a.  Your company should be working on research and developmental projects. These activities should be experimental in nature. The results of which should not be easily deducible by equally competent known techniques.

b.  The project should not be subsidized. If so, it will affect the amount of tax credit that you will receive from the HMRC.


If your company meets the eligibility criteria, then you can avail the host of benefits from this scheme. This scheme allows the company to get the R & D tax credit in two forms.

1.  By providing credit: By reducing the amount of tax that you pay to the government. Essentially, the money is reduced from the net annual corporate taxes that you pay.

2.  By providing the money in terms of cash payments: This is useful if your project is not showing any profits. The money grant from the government can be used only to successfully run the research activities.

Companies eligible for this scheme:

a.  SME: If your company has less than 500 employees and your net balance sheet shows less than 86 million pounds, and also your annual turnaround is lesser than 100 million pounds, then you qualify as an SME. The R & D tax credit initiative is specially designed for such companies. With this you can benefit by claiming approximately 230% as your rate of R & D tax relief.

Things You Should Know Before Claiming R&D Tax Reliefb.  Large companies: If you have more than 500 employees and your annual turnaround is greater than 100 million pounds – you qualify yourself as a large company. It is relatively easy to claim for the R & D tax credits if you are qualified as a large company. You can claim up to 130% as your rate of R & D tax relief under this scheme.

The technical write-up:

It is very important to have a good technical write-up of your project and its details while applying for the R & D tax relief scheme. A good technical write up would state:

a.  The problem and how your research activity is aiming at solving the issue at hand

b.  When is the target date to set a resolution for the issue at hand?

c.  How and by whom is the issue being addressed?

d.  The total cost of the R & D activity along with the required bills and bill details.

e.  The day to day transaction of the project – with the research activities.

Charges and account handling: Claiming for the R & D tax relief incentive comes along with the process of running your business successfully. Since you would be involved and more concentrated on running your business and providing the right quality deliverables, there are a wide range of firms that specialize in helping you to file the tax credit incentive with the government. Browse around to find the right accountant and the right tax advisory firm to do the job would help you in a long run in claiming the Research and Development tax credit.

Importance of Supporting Documentation in Your R&D Tax Incentive Claim

When you are running a business, there are a lot of things that you need to keep in mind – things like accounting, financial statements, cash flows and the documentation of everything that accounts for your business. This is apart from taking care of the timely, efficient and quality-bound business deliverables to your end customers.

This is common for any business. These things start to play an even more vital role, if your business is research and development oriented, you have the right to claim tax credits and apply for R&D tax loans. Before you read on to find the importance of supporting documentation for claiming your R & D tax incentive, first learn some important facts!

Importance of Supporting Documentation in Your R&D Tax Incentive Claim1.  What is R & D Tax incentive claim?

As the name indicates, it is a claim that you can get from the government of Australia – when your company is working on projects that are research and developmental in nature. It is given to mainly encourage research and development of sciences which is required for the development of a strong economy. This program is a joint venture between ATO and the AusIndustry (who act on behalf of Innovation Australia).

2.  Which business qualifies for the R &D Tax Incentive claim?

These are some of the key points you need to keep in mind:

a.  The research should be on the development of technology – whose outcome is not already known and is difficult to be determined by general analysis.

b.  The project/research should be governed by principles of sciences.

c.  The research moves from experiments, leading to observation, analysis, evaluation and some logical conclusion- which will be of help to the larger masses of population.

d.  Your research should be registered with the “AusIndustry”.

e.  Your company must be a regular payee of the corporate taxes with the government.

f.  This facility can be availed by both SME (Small and Medium Enterprises) and the large industries.

3.  Supporting documentation and its importance

Book keeping and maintaining the required documents to substantiate that your company is working on R & D activities is as important as delivering the right quality product to your customer. Meaning- it is very important to maintain the relevant documents – about the expenses incurred, staff cost, contractor costs etc. It is important to keep the financial affairs of the business in place and readily available for any kind of audit.

Before you file for the R & D tax credit incentive from the government, make sure that you have the following in place:-

1.  Staff cost – This includes details on who conducted the research activities and the number of hours spent on the same.

2.  Cost incurred by your core R & D activities and the supporting activities. You also need documentation to verify who funds were allocated for the same.

3.  Contractor and sub-contractor charges- bills related to the same.

4.  Software costs that are involved only for your R & D related activities.

5.  Records of any purchase, sale, receipts and payments made to third party.

6.  Financial transactions of the day to day basis (related to R & D activities).

7.  All material costs that are used for R & D activities only.

8.  Total expenditure incurred for all your R&D activities.

9.  All invoices, payments and records related to the same mentioned above is a must to have.

Generally, the AusIndustry expects that relevant records are maintained for a minimum period of five consecutive years. You can be penalized if all relevant documents are not in place.

How Companies Can Claim Research and Development Tax Credit

When you are running a business, you have to take care of a lot of things – cash flows, financial situations, taxes etc. This is in addition to delivering good quality products to your customer. The challenge is even more, when your business or company is working on research and development oriented products. When your company is research oriented, the capital expenditure is very high and the risk involved is also high – since you are not sure about your end product. But such companies are very essential for the economic growth of the country. Companies which are research and development oriented are very essential to a growing economy and they are the need of the hour. So, the UK government has come up with schemes to promote such companies. One such scheme is the Research and Development Tax credit.

What is Research and Development Tax credit?

As the name indicates, it is the credit – in terms of money that is provided by the government for the companies that are research and development oriented. Your capital expenditure in running the company – your staff cost, contractor and sub-contractor costs, software costs and material costs can be availed from the government in terms of money when you claim for this credit.

How Companies Can Claim Research and Development Tax CreditThe terms and conditions

To avail this facility, you need to prove to the government that your company is research and development oriented. You need to satisfy the following conditions to avail this facility:

–  If your company is working on medical science research/ technological research/ any advancement of technology in general – which will help the larger section of the society, then your research will qualify to avail this tax credit.

–  Your company must be paying corporate taxes to avail this facility, since this credit is deducted from your corporate taxes. Essentially, you will be paying lesser taxes since the taxes would now be the difference of your actual taxes and the amount you get as credit from the government. To be eligible, you should be paying corporate taxes for a minimum of 2 years before you could avail the credit from the government.

–  Your company credits should be large enough to self-sustain – meaning that your company should not be dependent only on the tax credit provided by the government to sustain and grow.

–  Research in the field of arts, humanities, economics or social sciences does not qualify for research and development tax credit.

Facts to know

These are some important facts to know for companies that can avail the Research and development tax credit:

–  All companies – SME, large companies or start-ups can avail this facility – provided you are able to certify that you are working on research and development to help the larger masses of population.

–  You can file for the research and development tax credit along with your normal CT (corporate tax) filing. The HMRC does not make it mandatory for you to provide details of your projects at the time of filing for this credit. However, it is good if you could provide some details of your research activities and the costs incurred in your project during the time of availing this credit facility.

–  The tax credit (en.wikipedia.org/wiki/Tax_credit) is basically provided by the government as an incentive to invest more in the development of innovative and creative technology products.

–  The cash benefit that you get from this scheme can only be used for the efficient running of your business/company/project.

Why Does International Tax Accounting Matter?

How confident are you in the quality of products and services that your business or organization provides? Do you think that you have the cutting edge technology, the determination, the skills, and the knowledge required to always be ahead of your competition by a safe margin? Do you enjoy what you do—is the business moving in the direction you’ve always wanted it to move in?  If your answers to these three questions are affirmative, congratulations!  A word of caution, though: are you ready to take it to the next stage—that is—internationally?  Expanding your American business overseas or bringing your foreign business into the United States may seem like a dream come true, and we certainly hope that it would be just that, but the issue of international tax accounting is not to be left on the sideburner at any point. If your business is expanding to America or you personally are planning to make the US your new home, there is some thinking to do.


Why be concerned about international tax accounting?

Even when doing business in one location in one state, you usually have to make sense of numerous taxation levels, systems, requirements, and paperwork. Taking your business internationally, or bringing your business into the United States, multiplies any difficulties and complexities in terms of taxes tenfold. Some of the important issues at play here are whether there are certain bilateral or multilateral agreements in place between nations in question when it comes to taxes. You want to avoid double taxation for the same items and expenses, but you also want to make sure that you are not unintentionally avoiding mandatory taxes in one or both of the countries. While the situation is made much more complex on the business taxes side of things, even international tax accounting for individuals takes courage, perseverance, and research to be done correctly. Different jurisdictions have very different requirements when it comes to bookkeeping and accounting practices.

How to stay on the safe side

If you have an in-house international tax accounting expert, you are lucky. What many organizations and businesses tend to do, however, is hire an external team to handle this aspect of your business operations for you. A professional international tax accounting advisor is your safest and most reasonable choice when it comes to handling this side of things and letting you and your staff focus on the main line of your business. International taxation is a maze—unless you are working in international taxation yourself, you should not try to complete this maze without at least relying on expert opinion and suggestions.

As you may have noticed, counties, municipalities, states and the federal government like to make minute but life-threatening changes to legislation and paperwork. Hiring a professional international tax accountant will allow you to avoid these pitfalls on the global level.  The last thing you want in the life of your business is having several levels of tax authorities from several nations clamouring for your attention.

Why Law Firms Need Tax Accounting and Financial Management

A law firm is like any other business. They are providing a service and that service is subject to the cycle of the economy. Accounting law firms need sound financial planning and tax preparation to keep them competitive and viable in the marketplace. This is where financial analysis of the market, organized financial records, solid accounting practices and internal controls and taking care of employees will help to protect firms. Let’s discuss some of the services that law firms can expect from tax accounting and financial management professionals.

They will Provide a Solid Market Analysis

Law firms depend on the fresh influx of clients. To make this happen law firms need the most accurate and timely information on the possibilities for clients depending on market trends. Competent financial managers will be able to provide advice on where law firms should seek out new business. While diversity in clientele is an intelligent strategy, financial planning  also make sure that your firm doesn’t rush into decisions and has the right staff to take on new business or niche services. Proper financial analysis can help determine exactly how profitable a client base is likely to be in the short and long term.

They will Provide Organized Financial Records

In law firms, clients are billed in various ways. Some clients are paying a retainer, some are on a contingency basis, and some are a combination of the two. Billing is complex and it must be kept organized. A proper billing and financial management plan helps to set up best practices and procedures for accounts payable and receivable functions in a law firm. This is important because you want to ensure that finances are transparent for the sake of client confidence. It’s also essential that employees are paid fairly. Let’s not forget when it comes to tax time; you want all of the records to be accurate and comprehensive so they are easy to follow.

Tax Accounting

They will Provide Internal Controls

Hand in hand with keeping organized financial records, it is also extremely important for law firms to consult with accountant and financial management experts to set up procedures and best practices on how to run a law office, and how to properly segregate duties so that no individual has too much control over the finances. This will help to significantly decrease the chances of financial malfeasance and keep the finances above reproach.

They will Provide Protection against Uncertainty

Law firms depend on attracting and maintaining clients. Sometimes clients leave a firm and this means a loss of income until another client takes their place. This can create volatility in the income of a law firm. Firms need to be prepared for this reality and be ready to ride out the loss of even the most lucrative clients. This can be done through planning for it and saving the capital to overcome the setback of losing a client.

They will Provide Protection for Employees of the Firm

Proper financial planning can ensure that a law firm’s employees are taken care of in times of need and crisis. Proper financial planning can account for this and include insurance and benefits for employees in the annual budget of the law firm. If an employee becomes ill and has medical bill, insurance and benefits can cover them. Taking care of employees makes sound financial sense. Also, it is a possibility that at some point a firm may be the target of legal action. Malpractice insurance can be a part of your accounting and financial plan as it can help to mitigate the financial repercussions of a law suit.

Law firms may help people with their legal issues, but they are still a business. They need a comprehensive and solid accounting and financial plan (www.managingpartner.com/sites/default/files/ARK1708%20-%20Financial%20Planning%20and%20Management%20for%20Law%20Firms_Sample_Chapter.pdf) to be prepared for anything. An accounting and financial management professional will provide a plan that will aid law firms by providing financial analysis of the market and their own firm, the organization of their financial records, setting up internal controls, and protecting employees and the viability of the firm against uncertainty with insurance and employee benefits. These are the main reasons why  law firms should reach out for tax accounting and financial management services from qualified professionals.