Florida 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 in Florida.

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 20 years

Qualifications

More companies in Florida 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. 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 3 or 4 open tax years.

Florida R&D Tax Credit Case Study

An Orlando company designs and develops component parts for the aviation industry, a qualified target business industry for Florida's R&D tax credit.  The Company started R&D in 2017 and claims R&D credits each year for the development activities of its engineers. The company submits its application and is awarded an R&D credit for the 2021 tax year. Prior year Florida QREs for 2017, 2018, 2019, and 2020 are as follows: $600,000, $700,000, $800,000, and $900,000, respectively. The Federal credit calculated below is utilizing the Alternative Simplified Method.

FEDERAL
FLORIDA
Year
Total QREs
Credit
Total QREs
Credit
2021
$1,000,000
$84,000
$1,000,000
 $25,000

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

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