Tax Credit Secrets for R&D, Non-Profits, Startups and More - Part 2 with Randy Crabtree

Jan 30, 2024

Business owners dislike losing money to taxes even more than they dislike filing the returns! Discover how to leverage a range of tax credits from R&D to renewable energy. Turn your tedious tax return filing into a sweet, legal portal gaining you 3X more benefit than deductions.

In this episode of the Hidden Money Podcast, we continue to talk with Randy Crabtree of Tri-Merit Tax, whose expertise in tax credits may give you the tax-break you’ve been looking for.


In this episode, we discuss

  • The distinction between tax credits and deductions, emphasizing the significant advantage of tax credits in reducing taxes effectively.
  • A detailed exploration of the Research and Development (R&D) tax credit, including the 4-part test for qualification.
  • Real-world examples illustrating the broad applicability of the R&D tax credit beyond traditional high-tech sectors.
  • Insights into the misconceptions around what constitutes technology in the context of R&D, with examples demonstrating that even non-high-tech businesses can qualify for the credit.
  • Considerations for startups not yet making profit, regarding the R&D tax credit, with a focus on how it can offset payroll taxes.
  • An overview of the substantial opportunities presented by the Renewable Energy Tax Credits.
  • The user-friendly nature of renewable energy credits, with nonprofits being able to turn the credit into a tax payment, and for-profit businesses having the flexibility to offset Alternative Minimum Tax (AMT) or sell the credits.
  • The interconnected opportunities arising from installing renewable energy, such as the potential for additional tax benefits like the Energy-Efficient Commercial Building Deduction Credit (179D) and the possibility of cost segregation studies.

To Learn More

If you are interested in exploring tax-credits in more detail for your business, reach out to Mike and Kevin in the link below. If you want to connect with Randy Crabtree, you can visit his website Specialty Tax Professionals | Tri-Merit and connect with his team on the Meet the Team page Meet The Team | Tri-Merit. You can also find him on LinkedIn and other social media platforms.

To access the bonus tax content mentioned in the episode, go to

To start using the tax code as a tool to grow your wealth, schedule a call with Pine & Co. CPAs:




Mike Pine: [00:00:00] Let's do a quick primer again- the difference between a tax credit and a deduction. 

So, if I'm paying my marginal tax rate at 37% to the federal government, if I have $1,000 deduction that reduces my taxable income, that $1,000 really only reduces my taxes by $370,

but if I have $1,000 tax credit, I get to reduce my taxes by $1,000. Tax credits are awesome- almost three times more awesome than a deduction. Got to love deductions, but man, do I love tax credits. So tell us before we get into other tax credits, tell us about the one credit that still exists to help incentivize research and development.

Randy Crabtree: Yeah. So there is an R&D tax credit- research and development... some people call it research and experimentation credit R&E, R&D credit, 

and this is available for those innovative companies that are doing something around technology, around pharmaceuticals, around manufacturing, around [00:01:00] software, around something that has a science behind it-

engineering, computer science, biology, chemistry, and so, this is out there. What happens, like you said, Mike, which is a great explanation, you turn these expenses from a deduction into a credit.

You take deductions and you semi convert them to a credit. It becomes a credit, but there's math behind it and we're not going to do math today other than what you just did, which was great math, by the way.

Mike Pine: Thank you. Thank you...

Randy Crabtree: And so, to qualify for the credit, you have to meet a 4-part test, which first is, do you meet the permitted purpose? --which is really simple.

Do I have a new or improved? You could summarize it as new or improved product or process. So, a tangible product or a process that helps me get to that product at some level, but it goes further and it says, 'Do you have a new or improved product, process, technique, formula, invention, or software? And so, do [00:02:00] we have something that falls into those categories?

Is there technology on it? Science that we already mentioned? Is there uncertainty in the project? Which, uncertainty has to be technical uncertainty. So, what's the correct way to manufacture this widget? What are the components? How do these materials work together? Let's say there's a process of flash freezing food that's different

and we're trying to improve that process. That has technical uncertainty into it, and then, four- because there's technical uncertainty, we're going to experiment. And that's the 4-part test- new or improved product process, technology, uncertainty, experimentation. And experimentation is as simple as trial and error, prototyping, computer modeling, mathematical equations, all that kind of stuff.

And if we have that, there's a overriding factor, which I don't know how deep we want to get into, but bottom line is- if we have that, we have a project that qualifies. The good thing is then we convert that to a [00:03:00] credit. The most common users of this are manufacturers, pharmaceuticals, software developers... but don't limit your thinking to those because anybody that can meet that 4-part test could potentially qualify.

Mike Pine: The component of technology, I think I want to unpack that a little bit. So, there to be technology involved, most clients, when I bring up the possibility of R&D for them, they're like- 'We're not high-tech. We don't make software. We don't create IC chips.'

-- Explain how that technology doesn't necessarily mean what we consider technology in the normal world.

Randy Crabtree: Yeah. So all of us at some level use technology now. 

Every business is using it. We're using it right now, recording this, and everybody's probably integrating some kind of technology into their business at some level. So let me give you an example 

and I may have talked about this last time we recorded, but I'm part owner of a craft beer bar in Chicago.

Mike Pine: Yeah, I remember.

Randy Crabtree: Okay, and so that craft beer bar has an online store. We're a bar, we're a [00:04:00] liquor store, and actually since we talked last, we're a restaurant now too, we added a restaurant.

And so that online store- it's obviously run from software. We have our POS system, we have our inventory system, we have our accounting system, we have our shipping system, and all those systems need to communicate for an order to come in through the computer, get packaged and get shipped to the end user. Most of those are freestanding software products already- POS system, we licensed from somebody, every other system we licensed from somebody, but to get them to communicate, we had to develop some links so all those softwares communicated together. All that time we spent on creating those links between that software was R&D time.

And so, I have a liquor store, a bar that took an R&D tax credit because of integrating technology into that business.

Mike Pine: That makes sense. That was a great example! 

Well, let's get into a little more, maybe high [00:05:00] level, but details, of the R&D tax credit- how it works and when should someone consider talking with their CPA or their tax professional about R&D tax credit?

Randy Crabtree: Yeah. I think a good rule of thumb is- If you have over $100,000, $200,000 of expenses that you think fall into what I just said, that 4-part test, and the expenses I should identify- salaries and wages: who in the company is doing these things, designing, testing, prototyping or supporting those activities?

Are we outsourcing those expenses? That's another thing. And are we consuming materials like supplies and that's another thing. So, if we think we got a couple hundred thousand expenses, it's worth a look because a good rule of thumb is somewhere between 6-10% of those expenses.

So, if we have $200,000, we got a $20,000 credit, and Mike educated us on the fact that that $20,000 credit- that's $20,000 in your pocket assuming you're paying taxes. So, that becomes a significant number to a lot of [00:06:00] taxpayers, and so, most bar owners aren't going to think they're doing R&D, so somehow, we have to be able to educate... and not every bar... 

I don't want every bar owner come and say, '...and I have an R&D tax credit.' So, that's the bad part of that example, but if you're using technology, if you're manufacturing, if you're integrating software, if you're with. coding being part of it, not just installing a program, but coding, that's the common area. It's worth a look.

Mike Pine: What about startups? You mentioned if you pay tax, then you get the tax credit, but what about startups who maybe aren't making a net profit yet? Because most startups 


but they're paying payroll. Can that credit help them out dollar-wise?

Randy Crabtree: Look at you lobbing me a softball there that I can go. That was nice. 

Yes. There is a rule in place and this kicked in about seven years ago or so. Tangent alert real quick. Congress over the years have made the R&D tax credit user friendly.

They've every year we get [00:07:00] something more user friendly. And then this 174 R&D Capitalization rule just counteracted all that! So Mike, what you were alluding to seven years ago in the PATH (Protecting Americans from Tax Hikes) Act, whenever that came out eight years ago, they defined a subset of companies- startup companies, and they defined startup companies as companies that have less than $5 million in gross receipts in the current tax year, and no gross receipts further back than 5 tax years, including the current one, and if you fall into those requirements, what you can do, you could take the credit and you can offset payroll taxes. When that was originally defined, it was $250,000 of credit can offset payroll taxes. I think today, it's $500,000 now. A $5 million company is going to be a hard stretch to get a $500,000 credit.

So, most startups, if they qualify, should be able to get a majority of the credit to offset payroll taxes, and they may not have $500,000 of payroll taxes to offset either, but it carries forward if they don't. So startups, yes, can use the credit. They can elect to have it go [00:08:00] to their 941, which is their payroll tax return, and get a refund off on their payroll tax return or reduce their current payments.

Kevin Schneider: That's really big because that's going to be your biggest expense as a startup is payroll. You're just trying to get your company off the ground, but there is a big difference between, I think you already alluded to it a little bit earlier, as being contracting R&D credits or R&D workout versus employing it and doing it yourself.

There's a vast difference between those two, because for instance, Mike and I, we are investing into some, I would say, R&D qualified work where we're revamping a dashboard, we're doing a lot of software work, trying to get, just like your bar was, I'm trying to get project management system, time and billing system, billing, all these components talking together

so we can make management decisions and data's not everywhere. We're trying to clean that up, but we're having outsource it. We're accountants. I don't know how to run that. I'm not going to run that project so we are outsourcing it, and there's [00:09:00] no payroll tax on that. If you have a contractor, you're not paying any payroll tax.

So, in that instance, we're not going to have much meat on that just because you're going to get a phased down tax credit when it comes to contractor payments, and even more so if they're foreign. Yeah, so, every situation's a little bit different, but if you're a startup and you have employees, you have hired the engineers, the computer programmers, and you are doing the work yourself- tremendous benefits.

Randy Crabtree: Oh, yeah, for sure. And it's an area where, you know this credit can be used for five years, from Day 1 till as long as you're still under $5 million, you could do this every year, and even if you can't use it every year, it carries forward- even on the payroll tax side, it carries forward, but it also carries forward on the income tax side, if you're trying to offset income tax with it,

so, it is a nice benefit, obviously. If I'm working with a company, I'd rather there's a current benefit than carrying it forward because I'd rather tell somebody, 'Yes, there's money going back into your bank today, then we're [00:10:00] hoping there's money going back into your bank in a couple of years.

If you're in the startup phase and you're very confident, it may make sense to still look at it, even if you can't offset payroll taxes.

Kevin Schneider: Yeah, because they're going to have to pay you, whether or not it carries forward, is that how it works? So, if you have a client who has a large credit, but it's carrying forward, they're going to have to pay the credit company, you guys, to be able to perform that work, do the due diligence and do everything that you need to do,

but they're not going to see the benefit over unless it's spread out over several years.

Randy Crabtree: That's why I like somebody's to have current benefit because I feel guilty that if they don't use it and I ask them to pay me for something, so, 

and I probably shouldn't even say this, but we do work out deals if there's not a current usage of it, maybe even delay, and sometimes, but don't let my partners know I told you that.

Mike Pine: We won't post it anywhere except everywhere.

Kevin Schneider: Yeah. Except all of our social media channels. Yeah. That's okay.

Randy Crabtree: Well, that's fine.

Mike Pine: All right. So that's some more detail on the R&D tax credit [00:11:00] recently. And this is one thing I do love about our government in our country. It doesn't matter if the Democrats are in charge or the Republicans are in charge, or heck, even a Libertarian is in charge although that hasn't happened- they all come out with some kind of tax cuts or tax incentives and the inflation reduction that came out

just over a year ago now, came out and I don't know what it does for inflation, but it has a whole bunch of tax credit incentives, especially in energy and renewable energy. Randy, can you talk to us about some of those and what some of our listeners maybe didn't know that there's money out there for them if they're doing X, Y, or Z.

Randy Crabtree: Yep. And I'm going to talk from the business standpoint, not the individual standpoint, but just everybody knows at the 1040, the individual taxpayer level, there are incentives as well. Electric vehicles and solar panels and all that, but from a business standpoint, this is a huge

opportunity for taxpayers, and so, before I even define what they are, R&D tax grid over the next 10 years is [00:12:00] projected to be $100 billion tax saving opportunity for taxpayers. So $10 billion a year, $100 billion over the next 10 years, which is a huge opportunity. Now Congress looks like at this like- 'Okay, here's our cost.

Our cost is $100 billion.' --For us as taxpayers, it's our opportunity is $100 billion. 

The renewable energy, when it was first defined by Congress, they attached a $400 billion cost to it for the next 10 years, or 400 billion a dollar opportunity, so four times the R&D tax credit, which is a huge opportunity.

We've had companies, these financial think tanks or whatever, analyzing this bill and they're saying the Congress is wrong. This is a trillion dollars, over a trillion dollars over the next 10 years of opportunity with these renewable credits, and this is after they've seen the implementation and how it started.

So, we are at the tip of the iceberg for this right now. This just kicked in January 1st of '23. There were some credits out there before this Renewable Inflation Reduction Act, I'm talking these new [00:13:00] credits, so, January 1st of '23, this kicks in, and I'll mention a couple credits in brief, but I'll mention one a little bit longer that's probably the more common one.

In brief, if you are a producer of renewable energy, you have a wind farm and you're selling this energy to the electric company or something. There's a credit for you. So that's Code Section 45. did. All right, that's 45.

Exactly. And this stuff is exciting. There's a credit for if you're a manufacturer and you're manufacturing equipment that's used in renewable energy. There's a credit for you if you're a manufacturer and you manufacture a component that goes into equipment that creates renewable energy. There's a credit for you

if you are somebody that is expanding your facility or reequipping it or enhancing it or building it new to- 1. Reduce greenhouse effects. Or 2. To expand a facility to manufacture these products. Or 3. [00:14:00] Expand your facility to figure out ways to recycle critical minerals and materials that go into renewable energy.

All that's out there. Those are nice credits. The one that we're going to see the most common usage of is 48- Code Section, and that is for companies. Not just companies, I'll explain that in a second, but some kind of non individual taxpayer or entity out there that are using renewable energy.

So, you put solar panels on your manufacturing facility, you put a windmill outside your church, a nonprofit- there's an opportunity, and so, they made, like we said, with the R&D tax credit, they made this so user friendly, they made this renewable energy super user friendly, meaning that if I'm a nonprofit, I put solar panels on or geo 

power or gas power, not gas, but geogas, biogas, that's what it's called- biogas power, which is like waste,[00:15:00] if I'm using wind, I'm using geothermal, I'm using special windows that actually create energy as well, if I am a nonprofit and I do that- I turn this credit, which is about a 30% credit.

It varies. It could be as low as 6%, most companies will get at least 30%, and it can go as high as 70%, which is gigantic. The nonprofit turns this into a tax payment. They file a 990-T and they get a refund of that tax payment, and it becomes a refundable credit for a nonprofit. Nonprofits had no incentive from a tax standpoint to put renewable energy project, products into their facilities.

Now they have a huge one. I am a for-profit business. And I'm, let's say I'm in AMT- this can offset AMT. It can go back three years in offset AMT and it carries forward 20 years, so I should be able to use this fairly easily with those requirements, but if I'm not, I can sell it. There's a market out there where you can sell this credit.

I don't know the numbers, [00:16:00] but let's assume I get 90 cents on the dollar and now someone else gets this credit that they get to use to offset their taxes. So offset AMT, sellable. Turn into a refundable credit for nonprofits if I install some kind of renewable energy product into my facility. We're on this hockey stick,

I think, growth for this. We're at the beginning- this flat, over the next couple of years. This is just going to skyrocket to the standpoint because the break even from installing renewable energy equipment into your facility has come down so far within three, five years or something, you've paid for it, and now you have free energy for the rest of this time.

You're just going to see a lot of implementation here. So, tax credits can be, you said at the beginning, taxes could be exciting or I love it, this is such an opportunity for taxpayers to get some savings. It's going to be fun.

Mike Pine: Yeah, IRC 45 and 48 are very sexy code sections. Let's just go ahead

Randy Crabtree: Look at that.

Kevin Schneider: Go.[00:17:00] 

Mike Pine: No, but it really works. This is one time recently where our government got together to do something for the betterment of our country, and it's working. It's going to make us more secure. Yeah, I'm not going to get started on the other things I could do to get... it gets more secure anyways, but this works.

And it even worked for me. I am not a green energy person. I mean, I like the idea of it, but I want the cheapest option I can get to whether it's putting gas in my car or hooking up to a utility. I put panels on our house last year, just in time for the 2022 tax year. We got them December 17th, finally installed,

and saved me $30,000 in taxes this year. I bought these solar panels on a 25 year, very ridiculously low interest rate loan, and just the tax credit alone pays for the first seven years of my solar panels, if I want to look at it that way, and at that point, my breakeven is well, it's awesome. I got cheap energy, free money.

I only [00:18:00] pay one payment of that mortgage, that 25 year mortgage. I paid $277 last year and in return, got $30,000 bucks and awesome solar energy at home. It's beautiful. I am green now.

Randy Crabtree: Yep. We're going to have to use you in marketing, I think.

Well, I just bought a camper as well. I'm buying apparently a lot of things. And on the camper, there's a solar panel on top, and we've used the camper only twice because we just bought a month ago and that solar panel, one 200W solar panel, keeps the two, basically marine batteries I have, to run the camper charged.

I'm sure if I was out for two weeks, it may drain it to this point, but we have had no problem using everything inside- the refrigerator, the lights, everything that needs electricity, and it's that solar panel on top. I don't think I get a credit for that solar panel, but still

Kevin Schneider: Unless that camper's business. Are you using the camper to travel and sell and pick up business? 

Then we are deducting the camper.

Mike Pine: why 

Randy Crabtree: an idea here.

Mike Pine: Why [00:19:00] is that solar panel not offer you a credit? You placed it 

Randy Crabtree: Well, yeah, 

Mike Pine: paid for it. You might need a cost segregation on your camper, but you paid for it- you should get a credit for it.

Randy Crabtree: And honestly, when I said that, I thought, 'Well, I didn't pay separately for the panel, but the cost seg maybe give me the opportunity to segregate that cost out and figure

Mike Pine: Don't forget 

Randy Crabtree: solar panel. And The batteries, because that's it! That's a credit now to the storage. The battery storage is a credit available as well.


All right. Thank you guys. I'm glad I'm on the show. Now, I just saved myself... well, obviously the solar panels must have cost me $30,000, the $38,000 I spent, or whatever the number was, and so, we could potentially do a credit there, and honestly, my camper would qualify as a house under the mortgage deduction rules.

So... maybe, That's right. Alright, 

this is this! I just got educated. This is awesome.

Mike Pine: This is pretty cool too- when you're looking at renewable energy projects, All those [00:20:00] things I just mentioned, we're going to put solar panels on a facility, our manufacturing plant, our warehouse, whatever. Well, most likely we're going to do something to that roof as well.

Randy Crabtree: It's just going to happen. So now, not only do you have a potential renewable energy credit, you have a potential 179D, which is energy efficient commercial building deduction credit. That taxpayer probably has an opportunity for a cost segregation study because you have to look and see what costs are energy costs and what costs are, maybe potentially, worth like 179 costs, which is an immediate deduction and what costs are other things.

And so, now you have three opportunities just because you put renewable energy to look at for tax savings. And then, you heard me say, there's a credit for manufacturers or renewable energy equipment. Well, not only do they have that renewable energy equipment credit, they probably have a cost seg and they have an R&D tax credit because they're a manufacturer.

So, it's just going to be this opportunity to bundle tax saving opportunities for taxpayers. And that's I get so excited about because there's just so [00:21:00] many opportunities all in one when you look at somebody installing renewable energy.

Mike Pine: Yes, this is exciting. We weren't really joking at the beginning. This is exciting stuff. Tax credits are amazing. They're valuable. They're there. We should use them, unless you don't want to take what's legally owed to you. Then, you need to talk to someone about the tax credits that you might be eligible for.

Kevin Schneider: Randy, as always, it's so fun to talk to you and you're just a wealth of knowledge when it comes to R&D tax credits. So, any last words? And also, just how can people reach out and find you if they want to kick the tires on their own situation.

Randy Crabtree: Well, what I would say, anybody listening here reach out to Kevin and Mike, because they're the overall tax experts, but if there is an opportunity with these things, they'll identify that and come to me with it. But if anybody wants to see me at all anywhere, our website is tri- T R I dash merit, M E R I T. com. 

There's a Meet the Team's page there. I'm all over LinkedIn and probably other social media. We have a marketing department that kind of [00:22:00] pushed me around to other places. Well. They don't push me around, although I would let them, they're very good. They do push me around, but they push the things I do out there on social media and they do a great job.

So, honestly, Mike, Kevin, you both know this. You both already said it, but these opportunities are there, and as Mike just said, these are legal parts of the tax code. Unlike some of the ERC stuff we talked about at the beginning, the stuff we're talking about is legal. You have earned this by following the tax law,

and so, there's no reason not to identify or at least investigate that there's an opportunity there for you. And so, the things that we do, we do a free investigation on all of them, there's no commitment in it. So it's worth just seeing if there's some way, shape or form, you can save money on your taxes.

Mike Pine: And there is a time crunch or time pressure. There's something called the statute of limitations for these credits. So, if you wait too long, whether you were owed the credit or not, you're not going to get it. So jump on. Don't let the statute of limitations [00:23:00] expire.

And on that note, let me quickly circle back to the ERC. When is the final drop dead date- the statute of limitation date hit for the ERC? When do people need to apply for that, if they're going to qualify?

Randy Crabtree: Yep. And so there's 2 deadlines because there was 2 years we were eligible for the credit 2020- the 2020 credit, which was pretty much available March 13th till the end of the year, if you qualified. 

All those quarters, it's a quarterly payroll tax filing, all those quarters are due, whatever tax day is this '24 season.

So, April 15th, unless it's a day or two later this year, but April, let's assume April 15th of '24, that's the statute. That's when we lose the opportunity to get the 2020 credit and then April 15th of '25 is the statute. That's when we lose the opportunity to take the '21 credit.

Mike Pine: Don't miss out on getting your money back. Thank you, Randy. 

Randy Crabtree: Thank you.

Kevin Schneider: Yes. Thanks, Randy.

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