California businesses can take advantage of a number of tax credit programs. Innovative companies can also access a Federal and state R&D tax credit.
The Golden State is filled with sun, sand, and booming industries. Businesses in California looking to grow have many tools to choose from in order to achieve this goal. California tax credits are one such tool that help businesses prosper.
Keep reading to learn more about these financial tools and how they can help your business thrive.
What are the California Tax Credits for Businesses?
There are a number of tax credits available to California businesses. Some of these include:
- California Competes Tax Credit
- Business Promotion Bill Credit
- City of Los Angeles Business Tax Subsidy for Internet-Based Businesses
- Cannabis Equity Tax Credit
- Homeless Hiring Tax Credit
- High-Road Cannabis Tax Credit
- California Research
As shown above, there are credits that benefit companies in a range of industries. Some of these credits, like the Homeless Hiring Tax Credit, even allow for business owners to directly make a positive impact on their communities.
Innovation is also rewarded in California. Companies that are creating new products or investing in new technologies can benefit tremendously from the California Research tax credit.
How Much is the California Research Tax Credit Worth?
According to the state of California Franchise Tax Board, the Golden State offers a permanent R&D tax credit program that rewards qualifying businesses.
You could receive 15% of qualified expenses above a base amount in addition to 24% of your basic research payments. Add that to a Federal R&D credit, and you could be looking at large reduction of your tax burden.
Bear in mind that all of your qualified research needs to occur in California in order to qualify for the credit.
Which Businesses Qualify for a Federal R&D Tax Credit?
If you meet the qualifications of the California Research credit, you most likely qualify for the Federal R&D tax credit. Below, you can review the questionnaire determines if your business is eligible:
- Has your company developed a new product or process or improved upon existing functionality?
- Has your company dealt with some form of uncertainty in the development process (appropriateness of design, method used, etc.)?
- Has your company utilized a process of experimentation to eliminate uncertainty (modeling, prototyping, trial and error or other testing)?
- Has your company conducted experimentation which relied on engineering, biological, physical or computer science?
- Has your company employed all or a portion of your workers within the United States?
If you’ve answered ‘yes’ to the above questions, your company could be a good applicant for the Federal R&D tax credit program. Next, you’ll need to take a look at your QRE.
Qualified Research Expenditures (QRE)
In order to estimate your Federal R&D tax credit, you have to learn what qualifies as QRE. There are three specific items are used in the calculation:
- The salaries of U.S. -based employees working on R&D
- The cost of disposable supplies purchased for R&D
- 65% of R&D contractor fees hired for R&D purposes
You can enter these three items into a free R&D tax credit calculator for an estimate of your credit. Typically, companies can recoup 7-10% of their R&D costs with this credit.
What You Need to Know About California Tax Credits
California business owners can utilize a wide range of tax credits to not only help themselves but their communities. Credits like the Homeless Hiring Tax Credit and Cannabis Equity Tax Credit empower businesses and typically disenfranchised Californians as well.
Innovative companies can also take advantage of both the Federal R&D tax credit and California Research credit to potentially recoup more than 10% of R&D costs.
Don’t wait to learn more about these financial tools. Speak with a member of the Research and Development Tax Credit Team today.