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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