Key Takeaways:
- Changes to IRS Form 6765 require more documentation and detailed reporting for R&D tax credit claims starting with the 2024 tax year.
- Businesses will need to classify wages (direct R&D, supervisory, support) and find qualifying activities requiring better tracking systems.
- All new sections of Form 6765, including Section G, will be mandatory by 2025 — start preparing now to avoid compliance risks.
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The IRS has made significant updates to Form 6765, which businesses use to claim the Credit for Increasing Research Activities. These changes, effective for the 2024 tax year, require added reporting and documentation, making it critical for businesses to act now to prepare. Whether you’re already claiming the R&D Tax Credit or considering it, these changes will impact your filing process, increase compliance risks, and require new strategies to maximize your tax credits.
How These Changes Impact Your Business
The revised Form 6765 introduces several new sections that require more comprehensive reporting. While only certain sections (like Section G) are optional for the 2024 tax year, they will become mandatory by 2025. These changes increase the need for more specific documentation, detailed wage classifications, and clear identification of qualifying business components — meaning your businesses will need to enhance how it tracks and reports R&D activities.
For larger companies, the IRS’s ASC 730 directive offers an opportunity to simplify the process. This initiative is available to businesses with $10 million or more in assets that expense R&D costs under U.S. generally accepted accounting principles (GAAP) and have audited financial statements. If your business qualifies, the directive reduces documentation requirements, offering a more streamlined way to claim the R&D Tax Credit.
However, all businesses — whether large or mid-sized — will need to adjust their processes to be compliant. The IRS is putting a spotlight on areas such as officer wages and how businesses differentiate between direct R&D labor, supervisory roles, and support staff. These changes will require your business to carefully track and classify personnel expenses to meet the new reporting standards.
What You Should Do To Prepare Now
If your business relies on the R&D Tax Credit, or you’re considering claiming it for the first time, now is the time to act. The proposed changes will require adjustments to your processes to prepare before the updates become mandatory. Here are the key areas of focus:
- Expanded reporting requirements: The new sections will require more qualitative and quantitative detail about your R&D activities, including finding and describing specific business components and projects tied to credit.
- More specific wage tracking: You’ll need to classify wages more precisely, separating direct R&D labor from supervisory and support wages. Businesses without clear tracking systems in place will need to make updates to comply.
- Assessing compliance risk: The phased implementation of the new requirements (2024 for some sections and 2025 for all sections) gives you time to evaluate your readiness. Gaps in your documentation or systems could expose your business to compliance risks, so early forecasting and planning are critical.
- Leverage ASC 730 directive (if applicable): For businesses that qualify, the ASC 730 directive reduces documentation burdens and streamlines credit claims. Now is the time to decide if your company can take advantage of this opportunity or modify procedures/processes for the 2025 year to take advantage of the directive methodology.
What These Changes Mean for Your R&D Tax Credit Potential
The changes to Form 6765 present both challenges and opportunities for businesses. On the positive side, they provide greater clarity for taxpayers and make the credit more accessible for qualifying activities. However, they also increase the need for precise tracking, documentation, and proactive planning. Not adapting to these updates could result in missed opportunities to claim credit or increased exposure to compliance risks.
To position your business for success:
- Evaluate your current processes for capturing and reporting R&D expenses.
- Update your documentation practices to account for the IRS’s focus on wage classifications and business components.
- Review your eligibility for the ASC 730 directive to reduce administrative burdens where possible.
- Forecast how these changes will affect your credit claims in 2024 and 2025, putting the necessary systems in place.
Navigating the complexities of the updated IRS Form 6765 and maximizing your R&D tax credits can be challenging. At MGO, we specialize in helping businesses like yours understand and leverage tax incentives to their full potential. Our team of experienced tax professionals is well-versed in the latest IRS regulations and can offer personalized guidance tailored to your company’s unique needs.
Don’t leave valuable tax credits on the table — reach out to our Tax Credits and Incentives team today to see how we can help you refine your R&D tax credit claims and enhance your tax strategy.