Utilizing the R&D Tax Credit Incentive
As a CPA, you deal with a lot of clients who all come from different business backgrounds and require different approaches with how you help them. But the one thing they all have in common is the desire to reduce their tax liability as much as possible.
With so many deductions to consider and tax breaks to look into, having someone taking care of the backend work while you have the freedom to focus on your client can be a gamechanger for most CPAs. Having a relationship with an R&D firm provides you the ability to offer R&D Tax Credit expertise, one of the best opportunities for substantial financial help, while minimizing the labor hours required of you to complete an R&D Study.
For expert support in all things R&D Tax Credit, an additional resource to consider for your firm is LEAF Speciality Consultants. LEAF brings years of tax credit experience to the table in addition to efficient and effective methods that will help you save your clients money as they maximize their R&D Tax Credit claims and get the proper substantiation needed if they were to come under audit.
Does Your Client Qualify for an R&D Tax Credit?
For expert support in all things R&D Tax Credit, an additional resource to consider for your firm is LEAF Speciality Consultants. LEAF brings years of tax credit experience to the table in addition to efficient and effective methods that will help you save your clients money as they maximize their R&D Tax Credit claims and get the proper substantiation needed if they were to come under audit.
Industry
- Are any of your clients developing new products or processes?
- Are any of your clients involved in applied sciences or technical projects?
- Are any of your clients in technology, engineering, construction, or agriculture?
Profitability
Whether your client is currently taxable, in losses, or is a start up with big plans, the R&D Credit can help. It can be used against current taxable income, carried forward for 20 years, or for start-ups, used against their quarterly payroll taxes.
- Are your clients profitable?
- Are any of your clients in the start up phase?
- Are any clients expecting to be profitable within the next few years?
Expenses
If your clients have qualifying projects, consider the following:
- Are your clients employing technical staff? (i.e. engineers, programmers, etc.)
- Are your clients using supplies that meet research and development criteria? -The IRS defines qualified supply as “any tangible property that was directly used for the purposes of the research.”
- Is your client paying salaries, spending significant amounts in materials, or hiring outside contractors?
The most advantageous characteristic of the R&D Tax Credit is the broadness. Research and development may sound like phrases reserved for scientists in labs, but the astounding fact about the tax credit is how much it actually encompasses rather than leave out. Businesses of all shapes and sizes have the potential to qualify because of the sheer size of what type of company is eligible to claim the credit. Industries that meet the standard include engineering, technology (such as software development), manufacturing, construction, and agriculture. Chances are you probably have more than one client whose business falls under this category. And if so, here’s what you need to know about what happens next.
Scoping
Once you’ve made contact with an expert at LEAF, you’ll begin the scoping phase. You and your R&D expert will go through and discuss clients who would be potential receivers of the R&D Tax Credit. That will be followed by an introduction by you for the expert and client to discuss their candidacy.
Engagement
Then begins the engagement phase. The client and the tax expert will continue to discuss their potential to qualify and go over necessary procedures, filing etc…this will require minimal leg work from you as the tax credit expert will handle all the R&D Tax Credit proceedings. Finally, the rewarding phase.
Deliver
The expert will reconvene with you and turn in all necessary forms including any substantiation reports and you will perform the filing. The entire process will be performed in a way that benefits you as the CPA and the client who is the recipient of the tax credit.
All in all, you gain the expertise of offering an R&D Tax Credit consultation, a chance to show your clients they mean more to you than just doing their taxes, and a way to provide a more in-depth service that shows the client your proactively thinking about how to save them money.
The R&D Tax Credit works at both a federal and state level. While the federal credit is available for those doing work in all fifty states, many states also have tax credits that incentivize companies to work in their state boundaries.
Select your state to find out if you
qualify for a State R&D Tax Credit
Alabama
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Alaska
Alaska provides a state tax credit equal to eighteen percent (18%) of a company’s federal-based credits, which includes the research and development tax credit as one. This credit provides a dollar-for-dollar offset against Alaska tax liabilities. To claim the credit, a company must file Alaska Form 6390 – Alaska Federal-based Credits along with its state tax return.
Arizona
Arizona offers a refundable and non-refundable research tax credit. The credit is equal to $2.5 Million of QREs and 15% of the QREs in excess of $2.5 Million.
To qualify to receive the refundable portion of excess credit: Company must have less than 150 full-time employees and must apply to the ACA and receive a Certificate of Qualification.
Arkansas
Arkansas offers a non-refundable R&D Tax Credit equal to 20% of QREs in excess of base year QREs. There are additional credits available if companies do development work in strategic areas, if research is university based, or if applied for as a strategic business.
California
California has a permanent R&D Tax Credit that is calculated similar to the Federal R&D Tax Credit’s regular method. The percentage is equal to 15% of QREs over the base amount and has an indefinite carry forward.
Colorado
Colorado has a credit available to taxpayers equal to 3% of of QREs over a two year base amount for companies that perform work within their Enterprize Zone
Connecticut
Connecticut has an R&D Credit available only for C-Corporations. There are two credits available: First: The Increments Credit – Equal to 20% of incremental development and partially refundable. Second: The Non-Incremental Credit equal to 6% of the current years R&D Tax Credits (depending on the number of employees and gross receipts)
Delaware
Delaware has multiple calculation methods available and must submit an application by September 15th. There is a statewide cap of $5 Million per year in R&D available.
Florida
Florida offers a tax credit for C-Corporations in targeted industries such as Clean Energy, Life Sciences, Information Technology, Homeland Defense, Financial Services, Emerging Technologies, and Other Manufacturing. The Credit is equal to 10% of Qualified Expenditures over a computed base amount, is limited to 50% of the state tax liability, and has a 23 Million Dollar Cap for all state credits.
Georgia
Georgia offers an R&D Tax Credit that is one of the best in the country due to its ability to be used against state income tax or against Georgia Payroll Tax. The credit is calculated as 10% over the requisite base amount. Of note, if claiming against payroll in Georgia, form ITWH must be filed within 30 days after the due date of the return and filed electronically through the Georgia Tax Center.
Hawaii
Hawaii offers a tax credit for qualified high technology businesses within the following 12 months of the tax year in which expenditures were incurred. Note that the credit is refundable and equates to approximately 10% of qualifying expenditures.
Idaho
Idaho offers a tax credit of 5% of current year expenditures over a computed base amount and is available for credit carryforward of 14 years.
Illinois
Illinois offers a non-refundable tax credit in the amount of 6.5% of qualifying expenditures over a computed base amount. Unused credits are available for the carryforward of 5 years.
Indiana
Under Indiana code 6-3.1-4.1, Indiana offers an R&D Tax Credit on 15% on expenditures over a computed base amount of up to $1Million. The credit is 10% of amounts over excess of $1Million. Unused credits can be carried forward for up to 10 years.
Iowa
Iowa offers a great benefit as a fully refundable tax credit and is 6.5% of qualifying expenditures over the computed base amount. Iowa does offer an alternative method to compute the tax credit at 4.55% of expenditures. One thing to note with Iowa is the ability to receive additional credits through Iowa’s Economic Development Authority if in the Enterprize Zone Program of a High-Quality Jobs program. The supplemental credit can provide an additional 10% of qualified expenses.
Lousiana
Lousiana offers a tiered tax credit for companies completing qualified work. The credit is computed as 40% for companies that employ up to 50 Louisiana residents,
20% for companies that employ 50-99 employee, and 8% for companies with 100 or more employees. Prior to claiming the R&D Tax Credits, a company must apply for and obtain a credit certification from the Department of Economic Development. The application requires a $250 fee.
Maine
Maine offers two credits in a Regular and Super credit. The regular credit is computed as 5% of the current year expenditures over a computed base amount. The super credit expired in 2014.
Maryland
Maryland offers a basic and growth R&D Tax Credit to facilitate growth within the state. The credits each require an application by September 15th for expenses incurred in the previous calendar year.
Massachusetts
The state of Massachusetts maintains a tax credit for 10% of incremental qualified R&D Expenditure. The credits however are limited to reducing the tax liability below $456 and only 75% of any excise tax due in excess of $25,000. Credits in excess of the taxpayer’s liability may be carried over for 15 years. Credits disallowed because of the 75% rule may be carried over indefinitely.
Michigan
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Minnesota
Minnesota offers a credit equal to 10% of the qualifying expenses up to $2 Million and 2.5% for expenses above $2 Million. The credit is available for partnerships and corporations and is available to be carried forward for up to 15 years.
Mississippi
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Missouri
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Montana
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Nebraska
Nebraska offers a tax credit of up to 15% of the federal tax credit allowed and prorated to costs incurred within the state of Nebraska. Research Credits are available offset sales tax, income tax, or refundable. The tax credits can be claimed annually for up to 20 years.
Nevada
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
New Hampshire
New Hampshire offers an R&D Tax Credit for manufacturing expenditures incurred within the state. The credit is the lesser of 10% of expenses incurred or $50,000. The state caps aggregate claims to $2 Million. The Credit application (Form DP165) must be submitted to NH DRA and postmarked no later than June 30 following the tax year during which the research and development occurred. The application should be submitted along with Federal Form 6765.
New Jersey
The New Jersey R&D Tax Credit is available to S and C Corporations, but not partnerships. The credit is unable to be passed through to shareholders. Credits are computed as 10% of qualified expenditures over a computed base amount and unused credits can be carried forward for up to 7 years (with some fields allowing carry forward of up to 15 years.)
New Mexico
New Mexico offers two tax credits in which the claiming business may choose either the Small Business R&D Tax Credit or Technology Jobs and Research Credit. The Small Business Credit is equal to the sum of all gross receipts taxes and 50% of withholding taxes paid on behalf of employees and owners with no more than five percent ownership, that are due to the state. Wherein the Technology Jobs credit is equal to 5% (10% if rural) of qualified expenditures and an additional 5% (10% if rural) of expenditures if certain payroll increase benchmarks are met.
New York
New York offers an R&D Tax Credit of 3% of the federal R&D Tax Credit and available for companies in strategic industries who were creating new jobs. Credits are required to be applied for through the Empire State Development office.
North Carolina
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
North Dakota
North Dakota offers an R&D Tax Credit of 25% of the first $100,000 and 8% of expenses over $100,000 over the computed base amount. Credits are able to be carried forward for 15 years and able to be sold, transferred, or assigned IF the taxpayer registers as a qualified research and development Company.
Ohio
Ohio offers an R&D Tax Credit against the Commercial Activity (CAT) Tax. Ohio’s credit is computed as 7% of qualifying expenses over a base amount and can be carried forward for up to 7 years.
Oklahoma
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Oregon
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Pennsylvania
Pennsylvania offers an R&D Tax Credit that must be applied for to the Department of Revenue by September 15th of the year following the year in which expenses were incurred. The credit is computed as 10% (20% for qualified small businesses) of expenses that exceed the computed base amount.
Rhode Island
Rhode Island offers an R&D Tax credit that can reduce the company’s tax liability by up to 50%. Credits are compuited as 22.5% of qualified expenditures up to $111,111 and 16.9% of expenditures over $111,111.
South Carolina
South Carolina offers an R&D Tax Credit of 5% of qualified expenditures over the computed base. Credits can reduce the tax liability of up to 50% of the company’s current-year tax liability. In addition, South Carolina allows a 10 year carry forward.
South Dakota
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Tennessee
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Texas
Texas offers an R&D Tax Credit of 5% of the qualified epxneses over the computed base amount. Texas’ R&D Tax Credit is used against the Franchise Tax and can be carried forward for up to 20 years.
Utah
Utah offers one of the best opportunities for R&D in the country due to the access to two credits. The first credit is equal to 5% of expenditures over the computed base amount (able to be carried forward for 14 years) . The second credit is computed as 7.5% of expenses in the current year (No carry forward available).
Vermont
Vermont offers an R&D Tax Credit of up to 27% of the federal credit with a 10 year carry forward.
Virginia
Virginia offers an R&D Tax Credit of $7M for all companies to claim within the state. The computation is 15% of the first $300,000 of QREs. Note that Virginia requires an application submitted by September 1st of the year following the year in which expenses were incurred.
Washington
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
West Virginia
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Wisconsin
Wisconsin offers an R&D Tax Credit of 5% of expenses incurred and over a computed base amount. However, the there is an additional 5% credit for companies designing internal combustion engines, or related to the design and manufacturing of energy-efficient lighting systems, building automation and control systems, or automotive batteries for use in hybrid-electric vehicles, that reduce the demands for natural gas or electricity or improve the efficiency of its use. Credits are able to be carried forward for15 years.
Wyoming
This state does not offer any R&D Tax Credits, therefore Companies completing work within this state are only eligible for the Federal R&D Tax Credit.
Expert Help Your Clients Will Love
One of the great things about working with a client on their taxes is being able to come back to them and say ‘look at how much you’re getting back’. Or ‘here’s what you saved on your taxes today. With the untapped potential of the R&D Tax Credit, chances are that there are thousands of businesses out there not taking advantage of the available cash flow. Compared to what you are already able to offer your client in savings, the R&D Tax Credit gives you the ability to say, ‘here’s an even bigger way to get more.’
With the help of an R&D specialty tax consultant working at your side, you can rely on the fact that the legwork is getting done and you’re getting the efficient expertise you need, in support of giving your client the game-changing benefit of the R&D Tax Credit.
Offer a Unique Service for Your Client
With the plethora of accounting services offered today, it can be difficult for CPAs to get their business to stand out. Most people see taxes as—well just taxes, but that creates a unique opportunity to offer more than just the service of filing. More and more people are looking for better service than just a tax return and business owners are on the lookout for services that proactively show you are invested in them as much as they are invested in you.
Being able to show your clients that you’re continually thinking of new ways to save them money and work harder for them gains their appreciation and trust. And that includes evaluating potential credits they may have earned. And that’s where connecting with an R&D Tax Credit expert comes in.
By offering a R&D Tax Credit expert as part of your services, not only are you able to advertise a unique option to businesses, but the tax credit expert will work with you to ensure client satisfaction.
Ensure Your Client Retention
Collaborating with an R&D Tax Credit expert means that you’re able to offer your client a unique service that not many CPAs can offer. And the best part? Working with an R&D Tax Credit consultant doesn’t mean you’re handing over your hard-earned clients. At LEAF Specialty Tax Consultants, we work to be part of your team. Our goal is to serve and provide you and your client the best tax R&D Tax Credit Study experience possible.
Ensure your client retention today by providing up-to-date R&D Tax Credit information, access to professional tax credit counseling, and expert filing.
Ensure your client retention today by providing up-to-date R&D Tax Credit information, access to professional tax credit counseling, and expert filing.
Commonly Asked Questions About the R&D Tax Credit
Yes. If your client’s company has been performing research and development practices for the past few years they may be able to still claim it by amending their tax return.
All businesses are permitted to carry forward any unused portions of the federal R&D credit for up to twenty years. Businesses that have yet to achieve profitability or stand at low profits may not be able to take full advantage of the tax credit but they are permitted to carry it over or use it towards payroll taxes. Consult with LEAF to review utilization for specific circumstances.
Yes. If your client’s company has been performing research and development practices for the past few years they may be able to still claim it by amending their tax return.
How to Find an R&D Tax Expert
Because of the Internal Revenue Code (IRC), revenue rulings and relevant court cases, and standards put into place, the R&D Tax Credit can take years of understanding to master. Let an R&D tax expert cut through the headache and get you the tax credit your clients can count on.
LEAF Specialty Tax Consultants brings years of experience, expertise, and understanding about the process of receiving the tax credit and is ready to help you create the best experience for your client.
