There is no Alaska R&D state tax credit program. Qualifying Alaskan businesses can participate in the federal R&D tax credit program in order to reduce taxes.
Nearly every state has a research and development (R&D) tax credit program that incentivizes businesses to invest in R&D. Alaska R&D tax credits, unfortunately, are harder to come by. Entrepreneurs in the Last Frontier need to be aware of what resources are available to them in order to elevate their business. Keep reading for answers to your R&D tax credit questions and discover how you can reduce your business’ tax burden.
Are Alaska R&D Tax Credits Available?
Innovative business owners in Alaska can’t take advantage of a state R&D tax credit program as one doesn’t exist. Of course, Alaskan business owners can participate in the federal R&D tax credit program. This program is open to inventive companies all throughout the 50 states. Created to produce growth in the country’s economy, this tax credit program encourages companies to create more U.S.-based jobs and allows qualifying company owners to reduce the company’s tax burden.
What Determines Eligibility for the Federal R&D Tax Credit Program?
While businesses across the country can apply for a R&D tax credit from the federal government, there are requirements applicants will need to meet. So, do you qualify for an R&D tax credit? You may be a good fit for this credit if your company has:
- Developed a new product/process and/or improved upon existing functionality
- Encountered a level of uncertainty in the development process
- Put into practice a process of experimentation to eliminate uncertainty
- Conducted experimentation that relied on either engineering, biological, physical, or computer science
- Employed all or a portion of your workers within the United States
After determining your eligibility, you will need to identify your company’s qualified research expenditures (QRE). Once that has been accomplished, you can estimate what your total credit will be. Let’s take a closer look at what qualifies as QRE.
What Are QRE?
You may think that many different R&D activities could count as QRE but that isn’t the case. You may only use these three items to calculate your company’s credit:
- The salaries of your full/part-time U.S.-based employees working on R&D
- A percentage of any 3rd party U.S.-based contractors hired to conduct R&D activities
- Disposable supplies purchased for your company’s R&D work
Enter these items into an R&D tax credit calculator, and you’ll be able to see an estimate of your total R&D credit. Innovative Alaskan companies can expect to receive 7-10% of the total QRE in the form of a credit. The next step in this process is to determine how you’ll be able to use your R&D tax credit.
Utilizing the Federal R&D Tax Credit
How the credit can be utilized will be determined by a few details like your company’s age and revenue for the filing year. For example, companies that are pre-revenue or making less than $5 million in revenue and are no more than five years old can directly offset the social security portion of the payroll tax. On the other hand, qualifying companies that are making more than $5 million in revenue or that are more than five years old can use the credit to reduce the income tax burden.
How can Companies Apply for the Federal R&D Tax Credit?
It’s in your best interest to speak with a tax credit professional before you start the application process. Working with a tax credit professional will ensure that your application is done correctly, and that you are set up for success. Since the federal R&D credit program comes with its own set of idiosyncrasies, its best practice to employ a tax credit expert you can trust to guide you through the process of putting together a comprehensive R&D study. Once you’ve completed your study, you’ll simply need to submit Form 6765 when you file your business taxes.
What You Need to Know About Alaska R&D Tax Credits
Unfortunately, business owners in Alaska can’t claim an R&D tax credit from the state; however, the federal R&D tax credit is open to businesses all throughout the U.S. This credit directly reduces a qualifying company’s tax burden. In order to properly apply for this credit, be sure to reach out to a tax credit expert. To maximize your credit, contact us at Bowers R&D today.