Did your Colorado-based business invest in research and development in the previous tax year? If so, you are likely eligible to receive tax credits back for your research and development. In fact, many businesses are entitled to this credit but they don’t even realize it. That’s because many of the research and development activities that qualify aren’t things that come to mind at first.
That’s why today, we’re going to help clear the air and talk about the Colorado R&D tax credit. You’ll learn whether or not Colorado actually has tax incentives for R&D expenses, and what they are. Then, we’ll explain what it takes to qualify and how you can get the process started today. It’s easier than you may think – especially when you have the right help on your side!
Does Colorado Have an R&D Tax Credit?
First things first – does Colorado have an R&D tax credit? Yes – they do. This credit is managed by the Colorado Enterprise Zone Program. Unfortunately, this state government does not make it quite as easy to claim the credit as other states. Don’t worry though – we’re going to walk you through the entire process to help simplify things. But, you’re probably wondering whether or not it is even worth your time – how much can you get back in terms of a tax credit?
While many states offer a flat rate percentage of whatever money you invested towards your R&D, Colorado does things a bit differently. Instead, you are capable of earning back 3% of the increase in QRE (qualified research expenditures) exceeding the average from the previous two years QREs. Further complicating matters, you can only claim 25% (or less) of the total credit. The remainder of the credit must be carried forward to the next tax year.
Sounds a little bit complicated, right? Let us help break it down with an example:
Let’s imagine a scenario where your business invested $100,000 in 2021. But in 2019 and 2020, you only invested $50,000. This means you can claim 3% of the excess ($50,000), claiming 25% ($12,500). The remaining $37,500 will be carried forward.
Does My Business Qualify For The Colorado R&D Tax Credit?
As you can see, claiming R&D tax credits in Colorado is a wise business decision. But do you even qualify for the credit? What constitutes a QRE? Fortunately for you, there are a wide range of qualifying research expenditures that you may have invested in without even realizing it. To qualify, your research must meet a few criteria – including:
- The R&D must be in pursuit of developing new or improved products or services.
- The R&D must be experimental in nature (it hasn’t been done before by your specific company).
- The R&D must be technological in nature.
Let’s take a look at a few common examples that qualify:
- Developing new manufacturing processes to increase efficiency or decrease costs
- Testing new raw materials to improve a product or decrease costs
- Making enhancements to the quality of existing products
- Developing new software for your own processes or as a service
Chances are, you invested money that qualifies as R&D. If you dedicated time, money, or other resources to improve the way you do things in your business – you are likely entitled to the Colorado R&D tax credit. This credit is available to a wide range of industries, too. Whether you’re seeking construction tax credits or food and beverage tax credits, engineering tax credits, or anything else for that matter. Ready to find out for sure what you’re owed? Here is how to get started.
Want To Get Your Colorado R&D Tax Credit? Here’s How:
The Colorado research and development tax credit is unique in that you can get the process started yourself online. Later on, we’ll walk you through the benefits of professional help along the way – but for now, let’s talk about how to begin.
First things first – you need to apply. This will require you to pre-certify with your local enterprise zone administrator. Unfortunately, only certain zones within Colorado are eligible. The state government thinks this is a good way to help disenfranchised zones – so begin by finding out what one you’re in, and initiate the process with your local enterprise zone administrator.
Once you’re approved, you can provide your QREs for the prior 2 years along with your Colorado Tax Return. If you want to make this process as easy as possible and ensure you get back the full amount you’re entitled to, your best bet is to let the experts here at The Tier Group help you out.
We specialize in helping small and mid-sized businesses take advantage of the same tax incentives the large corporations have access to. We have an average recovery rate of $104K, so you can trust that this is worth your time and energy. We’ll begin by taking down some basic information from you and learning more about your company. Then, we’ll get you paired up with a licensed service provider in your industry and state. They will help you identify new funding streams for your business and figure out how much you can get back. Then, they’ll file everything for you and help you start receiving your rebate checks – it is that simple. Click here to book a call and get started!