California 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.
Benefits
- 15% of qualified expenses that exceed a base amount
- Dollar-for-dollar reduction in your federal and state income tax liability
- Carried forward indefinitely, but cannot be carried back
Qualifications
More companies in California 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, looking into a potential R&D tax credit may be a great benefit. In addition, look back studies can recognize unclaimed credits for the last 4 open tax years.
Case Study
A San Francisco Company develops software used by its clients. It had never before claimed the R&D credit for the development activities of its software programmers. This project involved a four-year study with a three-year look back.
The Company qualified for the federal R&D Tax Credit of $330,000 and an additional $247,500 in California state R&D Tax Credit.
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FEDERAL
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CALIFORNIA
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Year
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Total QREs
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Credit
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Total QREs
|
Credit
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||
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2021
|
$1,300,000
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$130,000
|
$1,300,000
|
$97,500
|
||
|
2020
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$900,000
|
90,000
|
$900,000
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$67,500
|
||
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2019
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$650,000
|
65,000
|
$650,000
|
$48,750
|
||
|
2018
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$450,000
|
45,000
|
$450,000
|
$33,750
|
||
| Total | $3,300,000 | $330,000 | $3,300,000 | $247,500 | ||