Does Your Business Qualify for the Research Tax Credit?
Article Highlights:
- Computation Method
- Regular Method
- Simplified Method
- Qualified Research
- The Credit
- General Business Credit
- AMT
- Payroll Tax Election
Calculated on the basis of increases in research activities and expenditures, the purpose of the credit is to reward businesses that pursue innovation by continually increasing investment in research activities. Even so, an alternative simplified method allows taxpayers to claim research credits if research costs remain the same or even decline compared with prior years.
Computation Methods – There are two methods used to compute the credit: the regular method that provides for a 20% research credit or the simplified method, which is easier to document but results in a reduced credit of 14% of eligible expenses.
- Regular Method - Under the regular research credit method, the credit equals 20% of qualified research expenditures for a tax year over a base amount established by the business entity in 1984–1988, or a later period for companies that started subsequent to that period of time. This method may be best for companies that can document a low base amount.
- Simplified Method - Under the alternative simplified method, the credit equals 14% of qualified research expenses over 50% of the average annual qualified research expenses in the three preceding tax years. If the taxpayer has no qualified research expenses in any of the three preceding tax years, the alternative simplified method credit may be 6% of the tax year’s qualified research expenses. This method may be the best choice for taxpayers with incomplete records from the mid-1980s, those complicated by mergers and acquisitions, taxpayers with a high base amount from that period or smaller business entities.
- A new or improved function,
- Performance, or
- Reliability or quality.
- Developing new or improved products, processes or formulas;
- Developing prototypes or models; developing or applying for patents;
- Certification testing; developing new technology;
- Environmental testing; developing or improving software technologies;
- Building or improving manufacturing facilities; and streamlining internal processes.
No Double Dipping – The business expense that created the credit must be reduced by the amount of the credit.
Payroll Tax Election – In the case of a qualified small business, one with gross receipts of less than $5 million may elect to claim a portion of its research credit, not to exceed $250,000, against the employer’s share of the employees’ FICA withholding requirement (the 6.2 percent payroll tax). To be eligible for the payroll tax credit, the business may not have had gross receipts in any tax year preceding the five-tax-year period that ends with the tax year of the election.
If you would like more details related to this credit or would like to discuss whether your company qualifies for this credit, please do not hesitate to call.
Sign up for our newsletter.
Each month, we will send you a roundup of our latest blog content covering the tax and bookkeeping tips & insights you need to know.
We care about the protection of your data.
Junglebooks Affiliate Program
Why Partner with Us?
With years of experience and a team of certified professionals, we deliver exceptional results to our clients.
-
Industry-Leading Expertise
-
Our firm is a leader in the accounting industry, providing comprehensive services that include tax preparation, bookkeeping, financial planning, and business consulting. With years of experience and a team of certified professionals, we deliver exceptional results to our clients.
-
Attractive Commissions
-
We value our affiliates and offer competitive commission rates for every client you refer who signs up for our services. The more clients you refer, the more you earn.
-
Comprehensive Support
-
We provide our affiliates with all the resources needed to succeed, including marketing materials, dedicated support, and regular updates on our services. You’ll have everything you need to effectively promote our firm and earn commissions.
-
Trusted Reputation
-
Our firm has built a solid reputation for excellence and trustworthiness. When you refer clients to us, you can be confident that they will receive the highest level of service and satisfaction.
Frequently Asked Questions
-
This firm prepares tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Our firm’s seasoned professionals are experts in all areas of taxation including:
- Individual Returns
- Payroll Tax Issues
- Business Returns
- Sales Tax Returns
- Rental Income Returns
- Business Consultation
- Expatriate Returns
- Fiduciary & Estate Returns
- Corporation Returns
- Bookkeeping
- Partnership Returns
- LLC Returns
-
Our firm offers a full range of planning services including, but not limited to:
- Individual Tax Planning
- Business Tax Planning
- Business Organization
- Rental Properties
- Foreclosures and Repossessions
- Retirement
- Investments
- Sales and Exchanges
- Pension Plans
- Education Planning
- Finance & Refinance Planning
- Home Purchase and Sale Planning
-
We are here for you twelve months a year, not just during tax season. Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call.
-
We maintain a policy of the strictest confidence concerning our clients’ affairs. You can rest assured that no one will learn about your business or tax status – even relatives, associates or friends who might have referred you to us.