Unlocking Benefits: Qualifying Factors for the California Research and Development Tax Credit
What are the qualifying factors for businesses to claim California's Research and Development Tax Credit?
To qualify for California's Research and Development Tax Credit, California businesses must meet the following requirements:
Perform Qualified Research: Businesses must perform qualified research in California, as defined by the California Revenue and Taxation Code and the Internal Revenue Code.
Incur Qualified Research Expenses (QREs): Businesses must incur qualifying research expenses such as wages, supplies, and contract research expenses.
Have Gross Receipts Under $5 Million: Businesses with gross receipts under $5 million per year may claim the credit each year. Businesses with gross receipts over $5 million per year may only claim the credit for research expenses exceeding a base amount calculated based on previous years.
Be a Corporation, S Corporation, or Limited Liability Company (LLC): Only corporations, S corporations, and LLCs can claim the credit.
File the Appropriate Forms: To qualify for the credit, businesses must file an amended tax return or a timely original tax return for the applicable tax year and must file Form FTB 3523, the Research Credit form.
It's important to note that the California Research and Development Tax Credit is limited to 15% of the eligible credit for the taxpayer's taxable year. Any unused credit can be carried forward for up to six years following the year in which the credit is generated.
To claim the Research and Development Tax Credit, businesses must fill out Form FTB 3523 and attach it to their California income tax return. The amount of the credit cannot exceed the taxpayer's tax liability for the year.
It is important to note that the California Research and Development Tax Credit rules may change over time and thus, it is a good practice to stay up-to-date with the latest tax laws and regulations before claiming the credit. Consultation with a qualified tax professional or CPA can also be helpful in understanding and complying with the California's tax laws and regulations related to R&D Tax Credit.