Most states offer some kind of research and development (R&D) tax credit program for innovative companies.
R&D is a vital part of any business that is trying to create new products or improve upon existing designs. Many states encourage local companies to invest in R&D by offering state R&D tax credit programs that reduce a company’s tax burden. Even better, if you qualify for a tax credit in your state, you could qualify for a federal R&D tax credit as well. Keep reading to discover if your state has R&D tax credits available.
Which States Have an R&D Tax Credit Program?
Over twenty five states offer a tax credit program. Unfortunately, the states listed below don’t have such incentives for their local entrepreneurs:
- Alabama
- Alaska
- Mississippi
- Montana
- Nevada
- North Carolina
- Oklahoma
- Oregon
- South Dakota
- Tennessee
- Washington
- West Virginia
- Wyoming
Be aware that even if you live in a state that does offer an R&D tax credit program, you’ll need to find out the rules of your state’s program before you apply.
Does My Business Qualify for a State R&D Tax Credit?
Every state’s R&D tax credit requirements are different. For example, Arizona offers an R&D tax credit for universities alongside a credit for companies aiming to make a profit. Other states have tighter restrictions on who can apply.
You’ll need to do some research into your state’s rules and regulations before you can be sure that you’ll be able to qualify. Now, no matter which state you live in, you can always apply for a federal R&D tax credit in addition to your state tax credit.
Which Industries Qualify for a Federal R&D Tax Credit?
Do you qualify for an R&D tax credit from the federal government? If your business falls into any of these categories, you could be eligible for a credit:
- Engineering
- Agriculture
- Biopharm
- Physical science
- Computer science
These broad categories allow a wide array of businesses to take advantage of this incredible helpful resource. For example, both a company focused on designing better air defense mechanisms and a local winery trying to create a heartier grape for colder climates would be able to submit an application for this credit.
Despite the fact that these two companies are working on wildly different projects, each one is engaging in research and development in engineering and physical science respectively. As long as these entities are based in the United States and are conducting R&D stateside, both could be candidates for a federal R&D tax credit.
How Can I Apply for a State and Federal R&D Tax Credit?
If you discover that your business qualifies for an R&D tax credit in your state, you should apply for the federal R&D tax credit as well, since companies can potentially receive up to 10% of their qualified research expenditures back from the federal credit alone.
Combine that with the credit from your state, and you could be looking at quite a sizable credit overall. With so much at stake, it’s best to consult with a professional when you begin your R&D study. Be prepared to share information like:
- The names of the company owners
- The names of other companies the owners have a majority stake in
- The names of individuals focused on R&D
- The salaries of those working on R&D
- Your company’s gross profits for the year
- The year your company was founded
- The name of your payroll service provider
More information will be needed but these facts will help you get started on your study. Knowing these details will also help you get an idea of what your credit could be when you use a free R&D tax credit calculator.
Begin your R&D study before tax season settles in so you don’t find yourself rushing to meet deadlines or have to file for an extension. Contact Bowers R&D today to get started on your state and federal R&D tax credit applications.