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 products and systems that reduce pollution and improve planetary health can be costly. The financial burden of such inventions can overwhelm a start-up or even an 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 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 companies to take part in this program. If your business meets the criteria listed below, you could qualify for this credit:
- 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 shown above, you should consult with an R&D tax credit expert to learn how to properly apply for this resource. 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:
- Businesses that are no more than five years old and are pre-revenue/making less than $5 million in revenue can reduce payroll taxes with the credit
- Qualifying companies over five years old or making more than $5 million in revenue can use the credit to offset business income taxes
- Young and established companies can choose to 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. Let’s take a closer look at how this credit is calculated, so you can take full advantage of it,
How are Federal R&D Tаx Credits Calculated?
You’ll need to go through the process of an R&D application to get an exact figure for your total credit. That being said, you can always enter these items into a free R&D tax credit calculator to get an estimate of your tax 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
Once you’ve found the total of your QRE, 7-10% of that total could be awarded to you in the form of the credit if you qualify. Be aware that the estimate you’ll see is only for the federal R&D credit, and this credit may not be on the only one you could qualify for. If you live in a state with an active R&D program, you could receive even more benefits.
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. With this credit in hand, you can take your business to new heights.
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. A company that qualifies for the federal R&D tax credit could reduce its tax burden by 7-10% of its QREs. The federal R&D tax credit can even be carried forward 20 years. A qualifying climatech company could receive even more benefits if it is located in a state that offers an R&D tax credit program. Have questions about your R&D tax credit eligibility? Contact us at Bowers R&D today to get the credit you deserve.