Are You on the Map of Lucrative State R&D Tax Programs?

The constantly evolving landscape of Research & Development (R&D) tax incentives entices yet perplexes many business owners. Recent policy changes at the federal level have made it critical for businesses to seize every opportunity to maximize their cash flow. The development you need to know is the requirement to capitalize your R&D expenditures.

Prior to 2022, American companies could expense the costs of R&D to immediately offset their federal tax liability.

We regret to inform you that following the 2017 passage of the Tax Cuts and Jobs Act (TCJA), including Section 174 Capitalization, US-based companies are now required to amortize these expenses during a five-year period. Overseas companies are now required to amortize during a 15-year period. Whether Section 174 will be repealed remains unclear after H.R.7024 stalled in the Senate in August. H.R.2673 has remained in the House since April and – at the time of writing – has 223 cosponsors, on both sides of the aisle.

As the law stands, if your company invests heavily in innovation, you may not see the full tax benefit right away.

What Can You Do?

This cloud of legislative uncertainty has obscured the appropriate course of action and made many companies hesitate to claim R&D tax credits. But you should know: you must capitalize R&D expenditures regardless of whether you claim R&D tax credits. 

Therefore, if you are completing qualified R&D and don’t claim R&D tax credits, then you are leaving money on the table.

Don’t Leave Money on the Table!

Now is the ideal time to explore your eligibility for R&D tax incentives. During the tax off-season, your overworked CFO and CPA can focus more effectively on helping your business succeed.

Acena is here to partner with you and your CPA every step of the way. R&D tax credits are our bread-and-butter business, 365 days a year. Contact us today for a free consultation.

Coming Soon: A Tour of State R&D Tax Programs

In addition to the federal R&D tax credit, many states offer their own lucrative incentives. These programs can vary significantly, from eligibility requirements to credit rates.

In the coming weeks, we'll dive deeply into the most generous states to R&D. We’ll tour: 

• Arizona, where the credit can be applied flexibly against income tax, withholding tax, and premium tax liability.
• California, where the credit can be elected to be taken as refundable, against net tax.
• Hawaii, where the credit can be carried forward for 20 years, allowing businesses to use the credit even if they don't have taxable income during the current year.
• Utah, where credit rates are high and can be claimed for a wide range of research activities, including basic research, applied research, and experimental development.

Stay Informed

Join Acena on tour!

• Sign up for our free, interactive webinar on Tuesday, November 19: “Cracking the (Tax) Code for R&D.”
  • This workshop provides one CPE credit for professionals keeping up with continuing education.
    
• Subscribe to our newsletter to send updates on state-level R&D incentives directly to your inbox.
  

Finally, make your voice heard on Section 174 Capitalization: contact your elected officials. 

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Edited by Rae Smoltz, Project Manager at Acena Consulting. Photo courtesy of Jernej Furman from Slovenia on Wikimedia Commons.