Arizona R&D Tax Credit Case Study
The R&D tax credit is one of the most valuable credits leveraged by companies. The R&D credit yields billions of dollars in federal and state benefits to companies engaged in qualifying research. The R&D tax credit can provide a significant reduction to current and future tax liabilities and a source of cash for companies performing R&D in Arizona.
Benefits
- Up to 13.5 cents of R&D tax credit for every qualified dollar
- Dollar-for-dollar reduction in your Arizona income tax liability
- For tax years before 2022, credits can be carried forward for 15 years
- For tax years after 2021, credits can be carried forward for 10 years
Qualifications
More companies in Arizona can now qualify for the R&D tax credit. Companies are able to qualify R&D activities beginning with the development of concepts and extend to the point where a product, process, formula, or other business component is ready to be commercially released. If you are engaged in any research activities in Arizona, looking into the state’s R&D tax credit may be a great benefit. In addition, look back studies can recognize unclaimed credits for the last 3 or 4 open tax years.
Case Study
A chemical manufacturing company in Tucson, Arizona qualified for a substantial credit. The company claims R&D credits each year for the development activities of its engineers. This project involved a multi-year study covering the tax years 2018-2021. The Company qualified for the federal R&D Tax Credits of $255,000 and an additional $306,000 in Arizona state R&D Tax Credits.
FEDERAL
|
ARIZONA
|
|||||
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
2021
|
$750,000
|
$75,000
|
$750,000
|
$90,000
|
||
2020
|
$700,000
|
$70,000
|
$700,000
|
$84,000
|
||
2019
|
$650,000
|
$65,000
|
$650,000
|
$78,000
|
||
2018
|
$450,000
|
$45,000
|
$450,000
|
$54,000
|
||
Total | $2,550,000 | $255,000 | $2,550,000 | $306,000 |
Four-Part Test
Qualified research activities are defined by the four-part test outlined below
Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.Experimentation
All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.Research and Development Tax Insights
Key Changes in Accounting Method Procedures for Section 174 Research Expenditures
10/02/2024The IRS has recently issued Rev. Proc. 2024-34, which modifies the method change procedures for specified research or experimental (SRE) expenditures under Section 174. This updated guidance provides important changes for taxpayers seeking to comply with the amended rules following the 2017 Tax Cuts and Jobs Act (TCJA). Here’s a breakdown of the key provisions … Read More
Senate Votes on Tax Relief Bill for IRC 174 R&E Expenditures, Bonus Depreciation and Section 163(j)
08/01/2024By Jonathan Tucker | Principal, Research & Development Tax Credits In a significant move after months of waiting, the Senate voted on the highly anticipated tax relief for American Families and Workers Act, aimed at easing the financial burden on millions of Americans. Championed by Senate Majority Leader Chuck Schumer to bring a vote in … Read More
KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements
07/24/2024By Jonathan Tucker | Principal, Research & Development Tax Credits With the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, significant changes were made to the Internal Revenue Code (IRC), notably to IRC 174. Starting in the tax year 2022, businesses can no longer fully expense their research and experimental (R&E) costs … Read More
KBKG Tax Insight: IRS Updates Form 6765 to Claim R&D Credit
06/25/2024By Jonathan Tucker | Principal, Research & Development Tax Credits On June 21, 2024, the IRS released an updated draft form 6765 – Credit for Increasing Research Activities, the tax form taxpayers must file with their tax returns to claim the R&D tax credit. This revised draft provides much-needed relief for taxpayers by reducing the … Read More
KBKG Tax Insight: IRS Eases Requirements for R&D Credit Refunds
06/20/2024By Jonathan Tucker | Principal, Research & Development Tax Credits The IRS issued new guidance around amending for R&D tax credit refunds postmarked as of June 18, 2024. This guidance reduces the documentation requirement to be submitted for amending by removing two previously required items. KBKG Insight: With just three documents needed to submit the … Read More
KBKG Tax Insight: Tax Court Denies R&D Credits for Engineering Firm
05/13/2024By Emily Flemmer | Manager, Research & Development Tax Credits In the case of Meyer, Borgman & Johnson, Inc. v. Commissioner No. 23-1523 (8th Cir. May 6, 2024), the U.S. Court of Appeals for the Eighth Circuit upheld the Tax Court’s decision denying research tax credits to a structural engineering firm because the taxpayer’s research … Read More
Tax Alert: DEA Proposal to Ease Restrictions on Marijuana
05/10/2024By Paul McVoy and Bill Taylor | Principals, Research & Development Tax Credits A recent proposal by the Drug Enforcement Agency (DEA) to reclassify marijuana from a Schedule I to a Schedule III drug represents a significant shift in the regulatory framework surrounding cannabis. This change could have profound effects on companies operating within the marijuana … Read More
Simple, Swift, Secure: KBKG’s Dash.tax Transforms R&D Credits Up to $50k
04/29/2024PASADENA, Calif. – April 29, 2024 – KBKG, a premier provider of comprehensive specialty tax services and solutions, proudly announces the debut of Dash.tax, its latest R&D tax credit software solution tailored for CPAs and businesses. Designed for swift and precise outcomes, Dash empowers users to effortlessly generate customized Research & Development (R&D) tax credit … Read More
KBKG Tax Insight: April Update, 174 Capitalization Fix & Bonus Depreciation, 2024 Tax Relief Act
04/24/2024KBKG Tax Insight: April Update, 174 Capitalization Fix & Bonus Depreciation, 2024 Tax Relief Act By Emily Flemmer | Manager, Research & Development Tax Credits Frustration mounts among advocates of a bipartisan tax agreement initially approved by the House in January but has since hit a roadblock in the Senate due to Republican resistance. This … Read More
Arizona Introduces New Research & Development Calculation Method for Tax Year 2023
04/22/2024KBKG Tax Alert: Arizona Introduces New Research & Development Calculation Method for Tax Year 2023 By Elise Rhee| Director, Research & Development Tax Credits Effective for the tax year ended 2023, Arizona has implemented a new calculation method, mirroring the federal Alternative Simplified Calculation (ASC) approach. Notably, if a taxpayer hasn’t incurred qualified research expenses … Read More