Posted by William Mehi on 09.01.21
Like the federal research and development (R&D) tax credit, the state of California provides a tax credit as an incentive to those who conduct research and development activities within the state. In fact, the 15% credit rate (regular credit only) for excess expenditures over a base, is one of the best credits in the nation. While the state and federal credits share some common requirements and incentives, the California Research Credit has some separate requirements.
The California Research Credit reduces the income or franchise tax of those taxpayers who engage in qualified research activities in California. Qualified research expenses generally include wages, supplies and contract research costs. Since 1987, the credit rate for basic research has doubled from 12% to 24% and the rate for qualified research has increased from 8% to 15%.
Provisions of the California Research Credit include:
In order for an activity or project to qualify for the research credit, the taxpayer must show that it meets all of the requirements in Internal Revenue Code § 41(d). Similar to the federal R&D credit, in order to claim the California Research Credit, the research activity must satisfy a four-part test:
There are several differences between California and federal law for claiming the research credit, so taxpayers must be familiar with the state requirements. Here are some of the things you need to know:
Additional differences can be found here.
Find Out if Your Activities Qualify
The R&D tax credit can be a lucrative incentive for innovative businesses in California. Given the new permanent nature of the federal tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving tax credit opportunities.
Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.
Our Los Angeles office is managed by William Mehi who has helped dozens of clients claim millions of dollars in R&D tax credits. William resides in Massachusetts, and divides his time equally between our Boston, New York and Los Angeles offices.