Who Can Benefit From The Research & Development Credit?
The Research and Development Tax Credit is available to companies that invest in the development of new or improved products, processes, software, techniques, formulas, or inventions. The Credit was initiated by Congress in 1981 as an incentive to American businesses to increase innovation. Qualification for the Credit depends on the nature of the activities performed by a company and the expenditures incurred for those activities.
Case Study
A New Jersey pharmaceutical Company working on a new drug to treat Alzheimer’s disease began operations three years ago. The drug is currently in Phase 1 of the development stage.
The Company is a pre-revenue start-up, operating as a C-Corp. It has 30 employees that perform various types of qualified research.
The Company generated $320,000 of federal R&D credits and an additional $160,000 of New Jersey state credits. Since the Company is operating at a loss and has no tax liability, it made an election to use the federal credits to offset payroll taxes for all tax years beginning after December 31, 2015.
All state credits were carried forward. Summary of the credits:
|
FEDERAL
|
NEW JERSEY
|
|||||
|
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
|
Year 3
|
$1,800,000
|
$180,00
|
$1,800,000
|
$90,000
|
||
|
Year 2
|
950,000
|
95,000
|
950,000
|
47,500
|
||
|
Year 1
|
450,000
|
45,000
|
450,000
|
22,500
|
||
| Total | $3,200,000 | $320,000 | $3,200,000 | $160,000 | ||
KBKG is a national firm specializing in R&D Tax Credits, Cost Segregation, Enterprise Zone Tax Credits, and Energy Efficient Commercial Building Deductions. Our engineers and tax experts have performed thousands of tax projects resulting in hundreds of millions of dollars in benefits for our clients. As leading educators in our field, we have been invited to speak to thousands of CPAs and Tax Professionals by some of the most prominent associations in the industry. Our goal is to bring value to our clients by providing quality service, building long-term relationships, and ensuring a high standard of professional ethics.