If your business invests money into research and development, you could be eligible for a Pennsylvania r&d tax credit. This can help you offset the tax liability for your business and free up capital for other important expenditures. Because this tax credit poses such a great opportunity, it’s important to understand the details and how to apply. On this page, we will cover everything you need to know about the Pennsylvania r&d tax credit. We’ll explain what the credit is, what qualifies, how to get it, and much, much more.
Chances are, you qualify without even knowing it. Because as you’ll soon discover, there are all sorts of qualified expenditures that you probably invest in regularly. From wages to engineers or designers, to new materials and even new workflows – the qualified expenditures can actually be right under your nose and you may not even know it!
The big corporations all take advantage of these tax credits, so why can’t you? It’s about time you earned back your investment and started playing on a level field with the other corporations in your industry. We’re here to help. So if you’re looking to reduce your taxes and invest in R&D so you can stay at the cutting edge of your industry, keep reading! We’ll start by explaining what the Pennsylvania research and development tax credit is.
What Is The Pennsylvania R&D Tax Credit?
Just about every state has some form of tax credit for businesses who engage in research and development – and the state of Pennsylvania is no different.
The Pennsylvania research and development tax credit is a state-level tax credit that’s available to businesses that engage in qualified research and experimentation activities. This tax credit is designed to encourage businesses to invest in R&D, which can create new jobs, spur economic growth, and produce new or improved products or services.
To be eligible for the credit, your business must have a physical presence in Pennsylvania and be subject to Pennsylvania corporate income tax. The credit can be applied against your Pennsylvania corporate income tax liability or your Pennsylvania capital stock/foreign franchise tax liability. If you’re a pass-through entity, such as an S corporation or partnership, the credit can flow through to you and offset your personal income tax liability.
The big question most businesses come to us with is – is this tax credit even worth our time? How much could we earn back? Trust us – it is worth your time to claim your credit. We’ll discuss below:
How Much Money Can Businesses Earn Back Through The Pennsylvania R&D Tax Credit?
The Pennsylvania R&D Tax Credit allows businesses to earn up to 15% of their eligible research and development costs back in the form of a tax credit. This means that if your business spends $100,000 on qualified research and development expenses, you could earn a tax credit of up to $15,000.
The credit can be carried forward for up to 20 years and backward for one year. This means that if your business doesn’t use all of the credit in the year it was earned, you can carry it forward to future tax years. Does the tax credit apply to state tax only or federal tax as well?
While the Pennsylvania R&D Tax Credit is a state tax credit, it can be used to offset both state and federal taxes. This makes this credit an even bigger opportunity for your business to offset your tax liability.
Now – you’re probably wondering, what expenditures qualify for the Pennsylvania r&d tax credit? Research and development don’t have to be as black and white as testing new formulations in a lab. If you’re under the impression that you didn’t invest in R&D and that these credits won’t apply to you, let’s not jump the gun. We’re going to cover what qualifies in this next section:
What Expenditures Qualify For The Pennsylvania R&D Tax Credit?
This is where things can get a bit tricky. To be eligible for the credit, businesses must incur research and development expenses in Pennsylvania. These expenses can include salaries paid to employees who are working on research and development projects, materials and supplies used in these projects, and outside contractor services related to research and development. Here are some of the specifics to help you determine if you qualify:
- Expenditures must be for the sole purpose of discovering information that’s technological in nature.
- The information discovered through these costs must be intended to be useful in the development of a new or improved business component for the taxpayer. This can be a better product, an improved manufacturing process, or any other improvement to your operations. We’ll discuss specific activities below.
Further complicating matters, the research activities must represent an advancement in the overall knowledge or capability in at least one of the following areas:
- The creation of new or improved products, processes, techniques, formulas, inventions, or software
- The improvement of existing products or processes
- The resolution of technical uncertainty
To put it simply, your research and development activities must be undertaken with the intention of creating something new or improving upon something that already exists. And that something must have the potential to create a new or improved business component for your company. Don’t worry – we’ll help you gain a better understanding of whether or not you qualify later on.
Can Any Industry Claim The R&D Tax Credit In Pennsylvania?
The answer is yes – but certain industries are more likely to qualify than others. The R&D Tax Credit in Pennsylvania is available to businesses of all sizes in a wide range of industries. But businesses that are engaged in activities such as product development, software development, or engineering services are typically the ones that can take advantage of the credit.
Don’t let that deter you if you’re in a different industry, though. You can still earn R&D tax credits for dentists, food and beverage tax credits, and much, much more.
How To Apply For The Pennsylvania R&D Tax Credit?
Now that we’ve answered some of the most common questions businesses have about the Pennsylvania R&D Tax Credit, let’s talk about how to actually apply for the credit.
The first step is to determine if your business is eligible for the credit. To do this, you’ll need to gather documentation of your research and development expenses. This can include receipts, invoices, contracts, W-2 forms (for employee salaries), and more. Once you have this documentation, you’ll need to fill out the proper forms. These forms must be filed with your corporate tax return.
If you’re approved for the credit, you’ll receive a notice from the Department of Revenue. This notice will come with instructions on how to claim the credit. But as with all things tax and finance in general, we don’t recommend going the path alone. This process can be complex, convoluted, and if done incorrectly, a waste of time. To really increase your chances of success in claiming back your tax credit, trust the experts here at the Tier Group.
Let The Tier Group Help You Claim Your Tax Credit & Recapture Funds
At The Tier Group, we take great pride in helping small and mid-sized businesses earn the same tax benefits as the huge corporations they’re up against. It’s time you start playing on a level playing field, wouldn’t you agree? With an average recapture rate of over $100k, you can trust that we’ve got the experience and know-how to help you earn what you’re owed. Are you ready to get started? Here’s how it works:
Begin by reaching out and filling out our questionnaire so we can learn more about your business. At that point, we’ll connect you with a qualified tax rep in our network. They’ll help you determine whether or not you qualify – and if so, for how much. Then, they’ll help you actually claim that tax credit so you can offset your tax liability and continue to invest in research and development. The best part? All our consultations are free. You’ve got nothing to lose!
Don’t miss out on this opportunity to offset your tax liability and invest in your business’s future! The Pennsylvania R&D Tax Credit could be just what your business needs to take its research and development efforts to the next level.