Are R&D Tax Credits Available in Delaware?
The state of Delaware provides the Research and Development (R&D) Tax Credit very similar to the federal version including the definition of qualifying research. Below are some of the differences between the federal and Pennsylvania research credits:
- There are two ways to calculate credit. First, use 10% of the excess of the taxpayer's total Delaware qualified R&D expenses for the taxable year over the taxpayer's Delaware base amount. Second, 50% of Delaware’s apportioned share of the credit if using the federal Alternative Simplified method.
- For taxpayers with average gross receipts under $20 million, the credit rate is adjusted to 10%, and using the Alternative Simplified method allows 100% of Delaware’s apportioned share of the federal credit.
- Qualified research must take place in Delaware.
- Excess Delaware research credits can be carried forward for fifteen years and are refundable.
- Qualified taxpayers must submit an application to the Division of Revenue by September 15 for research expenses incurred in the taxable year that ended in the prior calendar year.
Delaware R&D Tax Credit Case Study
A company in Dover, Delaware with fewer than 50 employees had never before claimed the R&D Tax Credit. 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 of 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 |
You can read more about this Delaware case study here.
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
Michigan’s Senate Enacts R&D Tax Credit
03/25/2024KBKG Tax Insight: Michigan’s Senate Enacts R&D Tax Credit By Michael Maroney | Director, R&D Tax Credits On March 19, 2024, Michigan’s Senate passed legislation enacting an R&D credit, the first of its kind since the R&D credit expired over a decade ago. The Senate passed HB 5100, which the Democrat-led Michigan House passed on … Read More
Research and Development Expensing (IRC Section 174) Still has Bipartisan Support
03/22/2024KBKG Tax Alert: Research and Development Expensing (IRC Section 174) Still has Bipartisan Support During a March 21 hearing on President Biden’s Fiscal 2025 budget, members of the Senate Finance Committee urged Treasury Secretary Janet Yellen to remember federal research and development (R&D) tax incentives to improve the United States’ economic competitiveness. The R&D tax … Read More
KBKG Tax Alert: Update on the 174 Capitalization Fix, 2024 Tax Relief Act
03/11/2024KBKG Tax Alert: Update on the 174 Capitalization Fix, 2024 Tax Relief Act The American Families and Workers Act of 2024 (“the Act”), aimed at reinstating the ability to deduct R&D expenditures, extending bonus depreciation, and expanding the Child Tax Credit has hit a significant roadblock in the Senate. Despite its bipartisan passage in the … Read More
Biotech R&D Tax Benefits
03/01/2024Understanding R&D Tax Credits for Biotech, Bioscience, and Pharma Research and development (R&D) is a huge part of the biotech, bioscience and pharmaceutical industries. Biotech, bioscience, and pharmaceutical companies operate on the forefront of innovation, constantly seeking new solutions to complex problems through cutting-edge technology and scientific research. R&D is the lifeblood of these industries, … Read More
R&D Tax Credit for Robotics Industry
02/26/2024R&D Tax Credits for Robotics Industry If you run a small business, large corporation, or a startup, business payroll taxes could take a big bite out of your profitability. Companies in the robotics industry can lower their tax burden with the research and development (R&D) tax credit. This tax credit can help businesses developing exciting innovations … Read More
Common Misconceptions About R&D Tax Credits: Debunking Myths and Clearing Up Confusion
02/26/2024Common Misconceptions About R&D Tax Credits: Debunking Myths and Clearing Up Confusion The R&D credit refers to tax-saving opportunities for companies that invest in research and development. The R&D tax credit incentivizes businesses of all sizes to develop or improve products and processes within their industry. Unfortunately, many misconceptions may unnecessarily stop a company from claiming the … Read More
Tax Credits for Developing Battery Tech and Chemicals for Electric Vehicles
01/31/2024Using the R&D Tax Credit to Join the EV Market The production and sale of electric vehicles (EVs) are on the rise, with more consumers switching to this eco-friendly option each year. The EV market has witnessed substantial growth, driven by factors such as increasing environmental awareness, government incentives, advancements in battery technology, and improvements … Read More
How the PATH Act Helps Small Businesses
01/31/2024Understanding R&D Tax Credits for Forest Products | KBKG Companies in the forest products industry increasingly rely on research and development initiatives to optimize manufacturing, increase revenue, and create a competitive edge. Even small and medium-sized forestry businesses may qualify for valuable tax incentives related to R&D. Unfortunately, the U.S. Chamber of Commerce estimates that … Read More
Understanding R&D Tax Credits for Forest Products
01/31/2024Understanding R&D Tax Credits for Forest Products | KBKG Companies in the forest products industry increasingly rely on research and development initiatives to optimize manufacturing, increase revenue, and create a competitive edge. Even small and medium-sized forestry businesses may qualify for valuable tax incentives related to R&D. Unfortunately, the U.S. Chamber of Commerce estimates that … Read More
KBKG Tax Alert: Proposed Bill Fixes 174 Capitalization and Cuts Off New ERC Claims
01/16/2024KBKG Tax Alert: House passes proposed bill to Fix 174 Capitalization, Extend 100% bonus depreciation, and Cut Off New ERC Claims, now in Senate consideration. Proposal Aims to Boost Businesses with Immediate Deductions for Domestic Research and Experimental (R&E) Expenditures and Capital Investments on qualified property while reining in the Employee Retention Credit (ERC). The … Read More