Colorado 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 Colorado.

Benefits

  • Up to 13.5 cents of R&D tax credit for every qualified dollar
  • Dollar-for-dollar reduction in your federal and state income tax liability
  • 25% of the credit can be used each year and it is carried forward until the credit is used.

Qualifications

More companies in Colorado can now qualify for the R&D tax credit. Companies are able to qualify R&D activities by beginning with the development of concepts and extending 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 Colorado, looking into the state’s R&D tax credit may be a great benefit. In addition, a look back study can recognize unclaimed credits for the last 3 open tax years.

Case Study

A Denver-based engineering firm had never claimed the R&D Tax Credit before. This project involved the tax year 2021. The Company qualified for the 2021  federal R&D Tax Credit of $130,000 and an additional $15,750 of state R&D Tax Credit in Colorado, of which $3,938 could be claimed in 2021.

FEDERAL
FLORIDA
Year
Total QREs
Credit
Total QREs
Credit
2021
$1,300,000
$130,000
$1,300,000
$110,000

Learn more about Colorado's tax state benefits.

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

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