In Virginia, there is a research and development tax credit that can provide businesses with a significant amount of money back on their taxes. This tax credit can be used by businesses of all sizes, but many small businesses are not aware of it or do not take advantage of the benefits. Whether it’s because they don’t think they qualify or they don’t think it’s worth the time and energy to file for it – one thing is for sure. They are missing out big time.
In this article, we will explain what the Virginia R&D tax credit is and how to file for it. We’ll also discuss what qualifies as research and development in Virginia so that you can make sure your business is taking advantage of all the available tax credits! Let’s get started.
Is There A Research and Development Tax Credit In Virginia?
The answer is yes! Virginia offers a research and development (R&D) tax credit for businesses that engage in qualified research activities. The R&D tax credit is a dollar-for-dollar reduction of your business’s income taxes, which means that it can save your business a significant amount of money on its taxes.
In order to take advantage of the R&D tax credit, your business must be engaged in qualified research activities. These activities must meet very strict criteria. Don’t worry – we will dedicate an entire section to breaking down what does and does not qualify for the credit in Virginia. First – let’s explain how the Virginia R&D Tax Credit works.
How Does The Virginia R&D Tax Credit Work?
As we mentioned above, the Virginia R&D tax credit is a dollar-for-dollar reduction of your business’s income taxes. What exactly does this mean, though? Let’s use an example to simplify it. Say your business owes $1000 in income taxes and has $500 in tax credit. This means your business will only owe $500 in taxes. The credit can be used to offset both state and local income taxes.
In order to take advantage of the R&D tax credit, you must file for it with the Virginia Department of Taxation (DOT). The DOT will then review your application and determine whether or not your business qualifies for the credit. If your business does qualify, you will receive a letter from the DOT confirming your eligibility for the credit. We’ll walk you through filing your credit later on. For now, we want to explain the terms of the credit. We’ll explain how much you can get back and whether you can carry forward or backward.
What Are The Terms Of The Credit?
One important thing to keep in mind is that this credit cannot exceed your business’s tax liability for the year. You won’t get money back in your bank account – rather, you’ll save on taxes. So, you must have a tax liability to benefit from the credit.
The credit can be carried forward for up to five years, and it can also be carried backward for one year. But the big question you want to know is – how much money can I get back for my business?
How Much Can I Get Back?
The amount of the credit depends on two things: the number of qualified research expenses incurred by your business and your business’s tax liability. For every dollar of qualified research expenses, your business will receive a 30% credit. So, if your business has $1000 in qualified research expenses, you will receive a $300 credit. However, if your business’s tax liability is only $500, you can only use $500 of the credit to offset your taxes. The remaining $200 can be carried forward or backward (as we explained above).
To sum it up, the amount of money your business can get back from the R&D tax credit depends on how much qualified research your business did and your business’s tax liability for the year. The credit is capped at 30% of qualified research expenses, and it cannot exceed your business’s tax liability.
What Qualifies As Research And Development In Virginia?
This is probably the most important question when it comes to taking advantage of the R&D tax credit in Virginia. After all, if your business isn’t doing qualified research activities, you won’t be eligible for the credit. So, what exactly qualifies as research and development in Virginia?
To put it simply, research and development activities are those that seek to create new or improved products, processes, or services. These activities must be technological in nature and meet certain other requirements. We’ll go over these requirements in more detail below.
In order for an activity to qualify as research and development, it must meet all of the following criteria:
- The activity must be undertaken for the purpose of discovering information that is technological in nature.
- The activity must be intended to be useful in the creation of a new or improved product, process, or service.
- The activity must involve experimentation or analysis.
- The activity must be undertaken for the purpose of discovering information that is technological in nature.
As long as your business’s activities meet all of the criteria above, they should qualify as research and development activities in Virginia.
Now that we’ve gone over what qualifies as research and development in Virginia, let’s talk about how to file for the R&D tax credit.
Filing For The R&D Tax Credit In Virginia
As we mentioned earlier, you must file for the R&D tax credit with the Virginia Department of Taxation (DOT). You can do this by completing and submitting Form R-130A, which is available on the DOT website.
When you complete Form R-130A, you’ll need to include information about your business’s research and development activities. This includes a description of the activities, the dates they were conducted, and the number of expenses incurred. You’ll also need to provide documentation to support your claims, such as receipts, invoices, or contracts.
Once you’ve completed Form R-130A and gathered all of the required documentation, you can submit it to the DOT either electronically or by mail. If you have any questions about how to complete the form or what documentation to include, you can contact the DOT at (804) 367-8031.
Want To Ensure You Get Back All That You’re Entitled To? Let Us Help
As you can see, taking advantage of the R&D tax credit in Virginia isn’t as simple as filing a form and getting money back. You have to carefully compile all your receipts and supporting documents, and jump through a few hoops to get the credit. This is why so many small businesses don’t take advantage of the credit in the first place. But we’re here to help.
At The Tier Group, we take great pride in helping small and mid-sized businesses take advantage of the same tax incentives that the big corporations have access to. Want to get started? We offer a free consultation that you can sign up for here. There, we’ll take some information about your business and learn more about you. After that, we can pair you up with a licensed tax professional in your area to figure out exactly how much you stand to gain – and it costs nothing to get started.
No matter your industry, we’re here to help. Here are the areas of expertise we specialize in, though:
- Construction R&D Tax Credits
- Software Development Tax Credits
- R&D Tax Credits For Dentists
- Food and Beverage Tax Credits
- Manufacturing Tax Credits
- Engineering Tax Credits
So what are you waiting for? Let’s get this process underway and help you earn back all that you’re entitled to.