The US media and entertainment (M&E) market is the largest M&E market in the world at a whopping $703 billion and is expected to reach $804 billion by 2021, according to the Entertainment & Media Outlook by PriceWaterhouseCoopers. The M&E industry consists of four main verticals, namely, film, music, book publishing and video games.
Software and technology is eating the world and the M&E industry is at the forefront of innovation as an integral part of American culture. Today, everything from conceptualization to production to distribution and consumption of media, music, movies, video games, and any form of entertainment is managed using technology. Every function performed manually either has been digitized or is in the process of being digitized, particularly in the COVID-19 era.
While it is hard to imagine a life without Netflix or Spotify, there is a lot of technological development that happens behind the scenes. Popular celebrities like Ashton Kutcher, Snoop Dogg, Dr. Dre, Kim Kardashian, Will Smith, and Tyra Banks are just a few that are involved in technology companies as investors, entrepreneurs and advisors. The M&E industry inspires continued innovation by pushing the boundaries of what’s possible, driving companies to create new technology to serve billions of people around the world.
Congress launched the R&D Tax Credit program in 1981 to help businesses to innovate faster and create jobs. Through this program the US Government provides over $10 billion each year to companies involved in Research and Development and innovation activities. The program is often overlooked by many M&E companies because they are unaware of it or unsure if their work would qualify.
M&E companies can get approximately 10% R&D Tax Credit from the Federal government to offset income taxes or to offset payroll taxes up to $250,000 per year. The R&D tax credit allows M&E companies to save money on their taxes and use it to fund other aspects of the business.
What Media & Entertainment projects and activities may qualify for the R&D tax credit?
Below are just a few examples of Media & Entertainment projects that could qualify for the R&D Tax Credit:
- Designing and developing new or improving existing apps, software or hardware to improve and streamline the production and distribution of media and entertainment
- Designing interactive technology used in multimedia entertainment, including Internet video games as well as music or video streaming
- Developing new or improving existing games
- Algorithm design
- Improving system performance
- Cross-platform development
- Interoperability with 3rd party products
- Frame rate improvements, simulations (smoke, fog, rain, etc.), motion capture
- Overcoming memory and framework limitations
What is the process to apply for the R&D tax credit program?
Applying for the R&D tax credit program can be a very time consuming process as businesses need to identify all the projects they worked on in the tax year and ensure that their projects meet the 4-part eligibility test below:
- Develop new (or improve existing) functionality, performance, reliability, or quality of a product, process, technique, invention, formula, or computer software.
- Eliminate technological uncertainty during development efforts.
- Undergo a systematic process to evaluate one or more alternatives to eliminate technological uncertainties and achieve the desired end result.
- Rely on principles of the physical or biological sciences, engineering, or computer science.
Next, businesses are required to produce a technical narrative of eligible projects and identify expenses associated with them such as employee salary and time, contractors, patent costs, hosting costs, and supplies.
Irrespective of project eligibility, all expenses claimed for the R&D tax credit require backup evidence in order to mitigate the risk of getting denied in an IRS audit. In fact, the R&D tax credit has been consistently listed in the IRS’ Dirty Dozen List of tax scams every year.
Once the information is compiled, it needs to be entered into the respective Federal and State R&D tax credit forms and filed with a company’s corporate income tax return.
Time is an expensive resource for gaming companies, particularly during a pandemic when there is much uncertainty and critical business needs to handle.
How to manage the R&D Tax Credit application process?
Boast.AI’s Research and Development Tax Credit management platform streamlines and automates the process of filing for R&D tax credits.
Behind the scenes, Boast gathers data from a company’s technical project management systems as well as payroll and bookkeeping systems to help identify and categorize R&D tax credit eligible projects and costs, and automate the application process.
Boast makes R&D tax credit applications hassle-free by managing the entire process including identifying eligible projects, preparing the technical narrative and financial reports, compiling the R&D tax forms, and representing you in the event of an audit. Boast only charges a fee when you receive the money from the government, so there are no upfront costs. Visit Boast.AI for more information.