The next best thing to paying no taxes at all is the chiropractic tax credit 2022 for R&D activities
The tax code contains more than 30 non-refundable tax credits for businesses. These are part of the general business tax credit and are claimed on IRS Form 3800, General Business Tax Credit, and on Schedule 3 of Form 1040. The good news is as a chiropractor you can qualify for a refundable tax credit 2022 for just doing business as usual.
Through the process of surveying hundreds of chiropractors from around the U.S., conclusive results have shown that 99% of chiropractors do not believe they qualify for this special tax credit.
Tax credit 2022: research and development (R&D) activities
The tax credit 2022 for research activities is intended to encourage chiropractors in research and experimental activities. What does that mean?
Let’s get into the specifics of the how and why. First, research activities are “qualified research” under I.R.C. § 41 if they satisfy the four-part test:
- the I.R.C. § 174 test,
- the technological information test,
- the business component test,
- and the process of experimentation test.
However, the activity is not qualified research if it is excluded under any one of eight exclusions.
To satisfy the I.R.C. § 174 test, a taxpayer must show that the expenditures connected to the research activities were “incurred in connection with the taxpayer’s trade or business which represent research and development costs in the experimental or laboratory sense.” In the case of certain chiropractors, we’ve identified that they are uncertain as to the optimal design of techniques in performing chiropractic care, such as the optimal method to perform decompression for a patient presenting symptoms of sciatica who is also suffering from obesity (or diabetes, or is a geriatric patient, or any number of other factors).
In addition to uncertainty with the optimal method of performing specific techniques, we’ve also identified that some chiropractors are uncertain as to the optimal process for treating patients, which may involve a combination of any number of different techniques, which evolve over time (often called, in industry terms, a “custom care plan”).
Technological information test
The technological information test requires the research be undertaken to discover information that is “technological in nature.”
The information discovered does not need to be new to the world, only new to the individual chiropractor. In practice, we’ve identified that some chiropractors undertake to discover medical information rooted in the application of the biological sciences.
Medical information discovered may include the optimal technique for performing spinal decompression given the specific equipment available to a chiropractor in their office, or the optimal combination of therapies available to the chiropractor given the specific issues presented by the patient.
Business component test
The business component test requires that the application of the information discovered as a result of the research activity is “intended to be useful in the development of a new or improved business component of the taxpayer.”
In practice, we’ve found that many chiropractors are focused on improving specific chiropractic techniques, such as spinal decompression, cold laser therapy and others. We’ve also identified that many chiropractors are focused on improving their “processes,” such as the diagnostic processes of taking information from more and more varied sources, including digital X-rays, MRIs, orthopedic tests, scans or other sources of data.
A process improvement may also be the chiropractor’s attempt to combine known therapies in new and unique ways. For example, perhaps they’ve never treated a patient with spinal decompression along with cold laser and some specific/new core exercises with their physical therapist.
Process of experimentation test
The process of experimentation test requires that substantially all of the research activities must constitute elements of a process of experimentation that relates to a new or improved function, performance, reliability or quality of the business component.
In the case of our chiropractor clients, we’ve identified that most of them perform periodic re-evaluations of their patients and note the results of these re-evaluations with the intent to improve the efficacy of their individual techniques or in the custom care plans they create by varying these techniques or care plans slightly over time based on recorded patient outcomes.
Ultimately, the goal of the chiropractors we’ve interviewed is to overcome uncertainty in the chiropractic world as to the best combination of the numerous chiropractic techniques available to modern chiropractors or in the optimal application of each individual therapy, such as the optimal frequency to operate a cold laser based on what issues the patient presents. In so doing, these chiropractors rely on the principles of biological and medical science in identifying and evaluating variations/improvements to their techniques and care plans.
The activity is not qualified research if it is excluded under any one of eight exclusions of I.R.C. § 41(d)(4). Of these exclusions, only one is directly applicable to chiropractors, which is that the term “qualified research” does not include any research related to the adaptation of an existing business component to a particular customer’s requirement or need. In practice, we’ve found that some chiropractors solely focus on applying known techniques and processes to their patients in creating “custom care plans” without ever varying these techniques or processes with patients who present similar issues with the intent to evaluate the outcome of past care and to discover information about how to improve these techniques or processes.
If you have never applied for R&D tax credits historically, then the good news is that in addition to tax credit 2022 we can go back three years and retrieve a refund of the qualified credits.
If you practice in the following states, you will also qualify for state R&D tax credits: Arizona, California, North Dakota, Rhode Island, Utah, Connecticut, Delaware, Indiana, South Carolina, Wisconsin, Alaska, Idaho, Illinois, Iowa, Kansas, Maine, Nebraska, Ohio, Texas, Vermont, Pennsylvania, Virginia.
DON RASMUSSEN, CAP, CTS, is a Certified Tax Strategist (CTS), a Chartered Advisor in Philanthropy (CAP), and a tax reduction strategist who’s worked with individuals, businesses and charities for over 30 years. He’s helped them make informed decisions, avoid costly mistakes, maximize tax efficiency, lower their taxes, and find money falling through the cracks, all without changing their CPA. For more information on how you can qualify for R&D Tax Credits, go to chirotaxcredits.com or call 704-490-4111.