Pennsylvania 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
- A taxpayer that is qualified shall receive a research and development tax credit for the taxable year in the amount of ten per cent of the excess of the taxpayer's total Pennsylvania qualified research and development expense for the taxable year over the taxpayer's Pennsylvania base amount.
- Dollar-for-dollar reduction in your federal and state income tax liability
- Credit carried forward up to 15 years
Qualifications
More companies in Pennsylvania 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
A company in Pennsylvania, Pennsylvania claims R&D Tax Credits each year for the development activities of its engineers. This project involved a multi-year study covering the tax years 2018 – 2021. The Company qualified for the federal R&D Tax Credits of $359,917 and an additional $148,750 in Pennsylvania state R&D Tax Credits.
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FEDERAL
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PENNSYLVANIA
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Year
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Total QREs
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Credit
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Total QREs
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Credit
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2021
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$1,300,000
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$135,333
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$1,300,000
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$65,000
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2020
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$900,000
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$91,000
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$900,000
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$43,750
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2019
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$650,000
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$63,000
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$650,000
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$27,500
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2018
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$450,000
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$38,500
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$450,000
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$12,500
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| Total | $3,300,000 | $359,917 | $3,300,000 | $148,750 | ||