Louisiana 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

  • Dollar-for-dollar reduction in your state income tax liability
  • Louisiana State Credit carried forward up to 5 years

Qualifications

More companies in Louisiana 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 3 or 4 open tax years.

Case Study

No Previous Years

A company with less than 50 employees incurred $210,000 of R&D expenditures in tax year 2019 and had no prior year R&D expenditures. In this case. there would be no base year. The calculation would be 30% of current years expenditures.

$210,000 x 30% = $63,000 in 2019 LA R&D credit

1 Previous Year

A company with less than 50 employees incurred $210,000 of R&D expenditures in tax year 2019 and had $100,000 in tax year 2018.

The base calculation would be the prior year multiplied by the appropriate percentage ($100,000 x 50%) which would be $50,000. In order to calculate the incremental increase in expenditures the base calculation is subtracted from the current year. The R&D tax credit is 30% of the incremental increase.

($100,000 x 50%) = $50,000 base calculation

($210,000 - $50,000) = $160,000 incremental increase

($160,000 x 30%) = $48,000 of 2019 LA R&D tax credit

2 Previous Years

A company with less than 50 employees incurred $210,000 of R&D expenditures in tax year 2019, had $100,000 in tax year 2018, and $150,000 in tax year 2017.

The base calculation would be the average of the prior year’s times the appropriate percentage ($100,000 + 150,000/2 x 50%) which would be $62,500. In order to calculate the incremental increase in expenditures the base calculation is subtracted from the current year. The R&D tax credit is 30% of the incremental increase.

($100,000 + 150,000/2 x 50%)  = $62,500 base calculation

($210,000 - $62,500) = $147,500 incremental increase

($147,500 x 30%) = $44,250 of 2019 LA R&D tax credit