Tax time is upon us. And media and information companies investing hard-earned dollars in product development, infrastructure and staffing to give themselves an edge over the competition may also be eligible for significant tax credits for those same investments (often in the six-figure range). In fact, according to Tracy Lustyan, managing director at alliantgroup, one of the premier providers of government-sponsored tax credits and incentives, media and information companies are among the most common groups to overlook the federal and state incentives that are available to their benefit.
At the upcoming Connectiv Executive Summit on May 3, Lustyan will host a Pre-Con discussing these incentive and more. In the meantime, Tracy sat down with us to elaborate on the incentive opportunities available to Connectiv members.
Connect: What opportunities for tax credits are typically overlooked by companies in the media and information space? How does company size factor in?
Tracy Lustyan: The Research and Development (R&D) Tax Credit is by far the most overlooked incentive. That is a real problem since the R&D Tax Credit is one of the greatest growth opportunities for media companies considering the prevalence of digital technologies within the industry.
In my personal experience, there are two main reasons why media companies fail to explore their potential eligibility for the R&D Tax Credit. First, the majority of these companies think that they don’t even perform ‘R&D,’ when in fact, this is exactly where these companies invest the bulk of their time and effort. In today’s media landscape, staying ahead of the latest digital trends—be it the steps taken to ensure high SEO rankings or to develop applications and effective user interfaces—is absolutely vital to remain relevant within the industry. Relating the credit back to the software/tech space, it is the technical work done by developers, programmers and other tech experts that qualifies larger technology companies for the credit—and since media companies now hire the same kind of workers to perform the same types of activities, it follows that they would also qualify for this incentive.
The second most common reason companies overlook the credit goes back to what you just mentioned—size. For whatever reason, media companies have the habit of thinking the credit is only reserved for Fortune 100 tech companies, when in reality eligibility relates to performing the right activities.
The bottom line: as long as your firm is using technical knowledge to make new or enhance existing software and technology (including products or services marketed to third parties), your company likely qualifies for the R&D Tax Credit.
Connectiv: How much savings potential is there with these credits?
Lustyan: Credit results are usually driven by a) the number of qualifying projects and b) the wages of the employees working on those projects. In practice, these metrics traditionally work in the favor of media companies since these firms generally have a high number of qualifying activities as well as employ developers and other tech experts whose higher salaries will drive up credit results.
Results will vary on a case-by-case basis, but it is common for media companies to receive federal or state tax savings in six-figure territory.
Connectiv: Are there specific examples around investing in either personnel or infrastructure that you can share? When would those tax credits kick in?
Lustyan: With respect to personnel, yes. We have helped many media clients in the past claim the R&D Tax Credit due to their developers qualifying projects and were recently able to help a digital media firm claim over $315,000 in federal R&D tax credits. As far as the window for claiming credits or when they kick in, a company can explore claiming the credit for all open tax years (which usually amounts to the last four years) on their latest tax returns.
To give you an idea of the types of media companies that we have qualified in the past, here are some of the common activities that have made these firms eligible for the R&D Tax Credit:
• Developing software that is tracking, monitoring and optimizing media campaigns
• Writing and enhancing algorithms to improve SEO
• Developing technological solutions to complex business challenges to meet user demands
• Designing the databases to provide improvements in efficiency, speed and user functionality
• Designing reliable algorithms and enhancing the data collection process associated with advertisements
• Developing Client Relationship Management (CRM) software or CRM bolt-on software
• Integrating CRMs and other technological components with other software or databases
• Applying business intelligence algorithms to improve functionality and reliability
Connectiv: Is there anything under the current administration that media and information companies should be aware of, either as an opportunity for savings or a potential problem?
Lustyan: That will depend on how tax reform legislation progresses through Congress later this year. My alliantgroup colleague and former U.S. Congressman Rick Lazio discussed the prospect of further expanding the R&D Tax Credit, but nothing is concrete at the moment. As new legislation moves through both chambers of Congress, our team will be sure to keep Connectiv members informed on any new policies that could impact their business.
For more information on the Executive Summit, including how to register, click here.