If your California-based business engaged in research and development in the previous year, you may be eligible for California R&D tax credit. You can earn back that investment you spent so that you can continue to stay on the leading edge of innovation.
The best part? There are more activities that qualify for R&D than you may realize. In fact, there is a good chance that your business is entitled to these rebates. Unfortunately, most small to mid sized businesses don’t take advantage of these opportunities. Maybe they don’t even realize the opportunity exists – or perhaps they don’t think they qualify. Or, maybe they don’t believe that the work to get that credit is worth it.
We’re here to clear the air. In this short guide, you’ll learn everything you need to know about the California research and development tax credit. You’ll discover what qualifies, how much you can earn back, and how to get started. Let’s not waste any time!
What Is The California R&D Tax Credit?
First and foremost, what is the state of California R&D tax credit? This is a rebate available to both individuals and businesses alike for expenses related to research and development.
California businesses will be delighted to learn that in this state, you have access to the best R&D tax credits of any state. It can help you reduce income or franchise tax. As of the time of writing this information, the tax credit is at 15% of the excess of your R&D expenses from the current year – subtracted from a computed base amount. The best part, though? California does not impose a dollar amount limitation on the expenses you can declare. This is not the case in many states.
And just like the South Carolina R&D tax credit, any unused amounts can be rolled forward into future years to ensure you get the full benefit from your research and development expenses. This tax credit is not to be confused with a deduction. You don’t necessarily deduct these expenses from your income. Rather, you declare the expenses and receive a tax credit back from the state government and/or IRS.
The big corporations in this state all take advantage of research and development tax credits – why can’t you? The reality is that small and medium-sized businesses have the same advantages as large businesses. That’s why we’re here to explain how you can get your tax credit. Before we do that, though, let’s talk about the difference between the Federal and state of California R&D tax credits.
Federal vs State of California R&D Tax Credits
There are two manners in which you can receive tax credits for research and development purposes: from the federal government and the state government (in this case, California). There are some slight intricacies between the two.
For one, you cannot go back in time to receive tax credits in California – you must file for the given year. This isn’t the case in every state. However, you can roll tax credits forward in the Golden State – which is nice. The credit never terminates – you continue receiving it year after year until you’ve exhausted the funds you’re owed.
There are also differences in how gross receipts are calculated and defined. This can get pretty complicated, which is why going with a licensed professional is always the right approach. At the end of this article, we’ll offer a recommendation that can help you get the tax credits you’re owed. First things first – do you qualify? There are four qualifying factors for both California and Federal R&D tax credits.
Do You Qualify For A California R&D Tax Credit?
There are two types of research and development in the eyes of California and the Federal government: qualifying R&D and non-qualifying R&D. As you can probably surmise, only qualifying R&D activities will earn you tax credits. But what qualifies?
This is the tricky part. And, it’s why we recommend you hire a professional like The Tier Group to help you identify expenses that qualify. Because the reality is that research and development is a very broad term. Many expenses will qualify that you may not have thought of. You don’t necessarily have to invent a groundbreaking, revolutionary product or service.
In fact, making simple improvements to your business in the following ways may qualify:
- Introducing new manufacturing processes
- Investing in software development
- Seeking improvements to raw materials and other quality enhancements
In considering whether or not you qualify for a state of California research and development tax credit, ask yourself the following questions:
- Did we dedicate time and money to creating new or innovative offerings?
- Did we dedicate time and money to improve our existing offerings?
- Did we dedicate time and money to develop new processes for greater efficiency?
- Did we dedicate time and money to develop patents, prototypes, or software?
- Did we spend money hiring designers, engineers, or scientists?
If you answered yes to any of these questions, it is very likely you qualify for the California research and development tax credit. And as such, you are entitled to large lump sums of money. So, what comes next?
How To File For Your California Research and Development Tax Credit
Now that you have a better understanding of whether or not you qualify, it’s time to take action. You could try to go about this yourself, and file for the California research and development tax rebate on your income tax return. You simply need to attach Research Credit (FTB 3523).
But we’ll be honest with you – this is something you want to have done by a professional. The small expense you’ll encounter by hiring a firm is offset tenfold in what they can help you earn back.
To ensure you have the best chance of earning all that you’re owed, trust the folks here at the Tier Group. We specialize in helping small and medium-sized businesses gain the same tax incentives as big corporations. With an average recovery amount of $104K, you have nothing to lose by reaching out for a free, no-obligation analysis. Here is how it’ll work:
- You’ll fill out a form and book a call with us here. We need some basic information about you and your business to get the ball rolling.
- We pair you up with a licensed service provider in your industry. They’ll help identify new funding streams for your business, and assess exactly how much you’re owed. If successful, you’ll start receiving your tax rebate checks fast.
That’s it – in just two steps, you can earn the tax credits you’re already eligible for. It’s that simple. And at the Tier Group, we specialize in a number of industries, including:
- Construction tax credits
- Food and Beverage tax credits
- Manufacturing tax credits
- Dental tax credits
- Engineering tax credits
- Software Development tax credits
So, what are you waiting for? Reach out today – what do you have to lose?