As certified public accountants, staying abreast of changes in tax laws and regulations is crucial to best serve your clients. In this blog, we’ll dive into the recent amendments by House Bill 2239 during the 2022 Legislative Session in Kansas. Specifically, we’ll focus on the changes to the Research and Development Tax Credit under K.S.A. 79-32,182b, which can significantly benefit businesses engaged in research and development activities.
What is the Research and Development Tax Credit?
The Research and Development (R&D) Tax Credit encourages innovation and technological advancement by providing R&D tax incentives to businesses that engage in qualified research and development activities. As per K.S.A. 79-32,182b, these activities allow expenses for deduction under the Internal Revenue Code.
Changes Introduced by House Bill 2239
House Bill 2239, signed into law during the 2022 Legislative Session, introduced several changes to the Research Tax Credit in Kansas. Let’s explore these changes in detail:
1. Increased Credit Percentage: Under the previous law, the R&D Credit in Kansas allowed 6.5% of eligible expenditures. With the passage of House Bill 2239, this credit percentage increases to a generous 10% for tax year 2023 and all subsequent years.
2. Expanded Eligibility: Another significant change is the expansion of eligibility for claiming the research and development credit. Previously, only C corporations were eligible to claim the R&D Tax Credit. However, starting with tax year 2023, the credit is now available to all Kansas income taxpayers, including individuals, partnerships, S corporations, limited liability companies, and other pass-through entities.
3. Transferable Credits: The most notable change is the introduction of transferable credits. Now, businesses and individuals without a current tax liability can transfer their R&D Tax Credits to other parties, allowing new flexibility. The transferee can claim the credit against their Kansas income tax liability in the tax year it was transferred and carry it forward until fully utilized. Note that only the full credit may be transferred.
4. Application Requirement: Unlike previous years, where you could claim the credit without an application, you must complete and submit form K-204, the Research and Development Credit Application, before claiming the credit. This change is due to the credit’s newfound transferability, which allows the transfer to occur before the taxpayer claims it.
5. One-Time Transfer: It’s essential to note that the R&D Tax Credit can only be transferred once. Documentation of any credit acquired through transfer must be provided as per the Department of Revenue’s requirements, using form K-260, the Kansas Tax Credit Transfer Notification Form.
6. Non-Refundable Credits: Transferred credits are non-refundable. In other words, this means that the transferee cannot receive a refund for any excess credit obtained through the transfer.
Maximizing the Benefits
Now that we’ve covered the changes, let’s review how you can help your clients maximize the benefits of the R&D Tax Credit in Kansas:
1. Identify Eligible Activities: Ensure your clients are engaged in qualified research and development activities. These can include activities related to creating or improving products, processes, or software.
2. Track Expenses: Help your clients maintain meticulous research and development expense records — this will be essential when calculating the credit.
3. Evaluate Transfer Opportunities: Consider transferring the credit to another entity to benefit your clients due to its newfound transferability.
4. Stay Informed: Stay updated on any additional regulations or limitations imposed on the R&D Tax Credit, as they may change over time.
Innovation Tax Relief
Kansas’ recent changes to the Research and Development Tax Credit provide great advantages for businesses and individuals involved in eligible activities. As accountants, it’s important to know about these changes to help clients with their tax strategies. By staying current with tax laws and regulations, you can help your clients make the most of the R&D Tax Credit and contribute to their financial success. For further details and application forms, visit the Department of Revenue’s website at [www.ksrevenue.gov](https://www.ksrevenue.gov).
Still curious as to how does the R&D Tax Credit work for small businesses? We always encourage our C.P.A. partners to consult with their clients’ specific financial situations and seek advice from tax professionals to ensure they take full advantage of this valuable tax credit opportunity in Kansas.
Read more about the Research and Development Tax credit in these recent blog posts.
- KBKG Tax Insight: IRS Releases Guidance on Section 174 R&E Expenses
- Wisconsin Department Revenue Updates Publication 131 – R&D Tax Credits
- How Form 6765 Can Benefit Your Business
- R&D Tax Credit for Software Development
- Understanding the R&D Tax Credit for Manufacturing
- R&D Tax Credits for Small Businesses
- Section 174 and R&E – Uncertainty and Questions