How to Qualify for a R&D Tax Credit
To qualify for the R&D tax credit, the activity must meet all four requirements:
- Be technological in nature
- Identify a specific goal or objective
- Seek to eliminate uncertainty
- Follow a process of experimentation
Calculating the R&D Tax Credit
The R&D tax credit can be calculated three ways:
- Alternative simplified
- Startups and small businesses
The traditional calculating is best for established companies with prior R&D activities. It produces a 20% credit of current year research expenses above a base amount.
The alternative simplified calculation can produce either a 6% or 14% credit against current year research expenses, depending on whether there are qualified expenses in the previous three years.
For startups and small businesses, the R&D tax credit can offset alternative minimum taxes or payroll taxes. Businesses with gross receipts of $50 million or less in the last three years can claim the credit against the alternative minimum tax.
Businesses with gross receipts of $5 million in the current year can claim the credit against up to $250,000 in payroll taxes.
In either case, the R&D credit can be carried forward up to 20 years.