Federal and state research and development (R&D) tax credits are available to qualifying climatech companies.

Electric cars, solar panels, and carbon-reducing products are great contributions of the climate tech industry. Unfortunately, creating productions and systems that reduce pollution and improve the health of the planet can be costly. The financial burden of such inventions can be overwhelming for a start-up or established business. Thankfully, just as there are federal and state R&D tax credits for breweries and cosmetic companies, there are R&D tax credits for climatech companies too. Keep reading to learn to apply for an R&D tax credit and discover if you qualify for a federal and state R&D tax credit.

Can Climatech Companies Claim a Federal R&D Tax Credit?

Since R&D tax credits reward companies for spending money on R&D, the federal government allows a wide array of businesses to take part in this program. If your company meets the criteria listed below, you could receive a credit that is 7-10% of your qualified research expenditures (QREs):

  • The company developed a new product/process and/or improved upon existing functionality
  • The company encountered a level of uncertainty in the development process
  • The company put into practice a process of experimentation to eliminate uncertainty
  • The company conducted experimentation that relied on either engineering, biological, physical, or computer science
  • The company employed all or a portion of your workers within the United States

If you meet the criteria listed above, you should consult with an R&D tax credit expert to be learn what business activities count as QRE and how to calculate a tax credit estimate. Of course, once you’ve begun applying for your R&D credit, you should know what you can do with it when you have it. While some tax credits can be sold for a profit, a federal R&D tax credit can only be used in three ways:

  1. Qualifying start-ups can reduce payroll taxes with the credit
  2. Qualifying companies to use the credit to offset business income taxes
  3. Companies can carry the credit forward 20 years

As you can see, a federal R&D tax credit can prove to be an incredibly important resource for your climatech company.  Now, the federal R&D tax credit may not be on the only credit you could qualify for.

Which States offer R&D Tax Credits?

Over 25 states offer tax credit programs for local entrepreneurs. Climatech companies can take advantage of state and federal R&D tax credits simultaneously. Unfortunately, the states in this list don’t have an active R&D tax credit program:

  • Alabama
  • Alaska
  • Mississippi
  • Montana
  • Nevada
  • North Carolina
  • Oklahoma
  • Oregon
  • South Dakota
  • Tennessee
  • Washington
  • West Virginia
  • Wyoming

If your business is headquartered in one of the states listed above, don’t worry. You can always make use of the federal R&D tax credit program no matter where you live in the U.S

How are R&D Tаx Credits Calculated?

You’ll need to go through the process of an R&D application to get an exact proper figure of your credit. That being said, you can always enter these items into a free R&D tax credit calculator to get an estimate of your total credit:

  • The salaries of employees who conduct R&D full or part-time
  • The cost of employing 3rd party contractors in the US
  • The cost of disposable supplies bought solely for R&D purposes

Be aware that that the estimate you’ll see is only for the federal R&D credit. If you live in a state with an active R&D program, your overall credit could be much larger.

R&D Tax Credits for Climatech Companies: What You Need to Know

Climatech companies can potentially utilize federal and state R&D tax credits simultaneously. Qualifying companies could receive 7-10% of QREs as a credit . The federal R&D tax credit can even be carried forward 20 years.  Contact us at Bowers R&D today to get the credit you deserve.

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