Delaware R&D Tax Credit Case Study

The Research and Development (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

  • 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
  • Credit carried forward up to 15 years

Qualifications

More companies in Delaware can now qualify for the R&D tax credit. Companies are able to qualify R&D activities 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. Looking into a potential R&D tax credit may be a great benefit if you are engaged in any research activities. In addition, look back studies can recognize unclaimed credits for the last 3 or 4 open tax years.

Case Study

A company in Dover, Delaware with fewer than 50 employees had never claimed the R&D Tax Credit before. This project involved a multi-year study covering the tax years 2019 – 2021. The Company qualified for the federal R&D Tax Credit of $271,832 and an additional $114,562 for the state R&D Tax Credit in Delaware.

FEDERAL
DELAWARE
Year
Total QREs
Credit
Total QREs
Credit
2021
$1,200,000
$127,166
$1,000,000
$52,986
2020
$850,000
$92,166
$700,000
$37,951
2019
  $500,000
$52,500
$450,000
$23,625
Total $2,550,000 $271,832 $2,150,000 $114,562


Learn about how to qualify for Delaware's R&D tax credit 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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