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07-04-2008, 09:41 PM
 Junior Member Join Date: Jan 2007 Posts: 7
What is the Simplified R & D Tax Credit?

I would like to know what is the Simplified R & D Tax Credit?

Thanks..

07-05-2008, 01:51 PM
 Tax Guru Join Date: Jan 2007 Location: New Jersey, USA Posts: 2,405 Blog Entries: 3
What is the Simplified R & D Tax Credit?

The Simplified Research and Development tax credit is one of the most "powerful message" sent by the US Congress to encourage US based companies to invest in new technology in the US itself. This new tax credit will allow more US companies to qualify for the Research and Development Tax Credit. The tax credit is calculated as being equal to 12% of the difference between the current year's research costs and one half of the average of research costs for the prior 3 years.

For example, in order to calculate the 2007 Simplified R & D Tax Credit for 2007, lets assume the R & D expense for XYZ Corp Inc is as follows;

2007 \$1,050,000 Current Year R & D Expenses

2006 \$900,000
2005 \$800,000
2004 \$400,000

Average of Prior 3 Years R & D Expenses = (2,100,00000/3)=\$700,000

Then the 2007 Simplified R & D Credit is calculated as follows,

= 12% x {(\$1,050,000 - 1/2 (\$700,000)}

= 12% x {\$1,050,000 - \$350,000}

= 12% x \$700,000

= \$84,000

Thus, simplified R & D Tax Credit for 2007 in this example would be \$84,000, which is quite a nice sum of money!!

However, for start-up business with less than 3 years in existence, the tax credit is equal to the 6% of current years "Research and Developement Costs".

In our above example, assuming the same R & D expenditures except that ZXY Corporation is in existence for less than 3 years, the simplified R & D Tax Credit for 2007 would be 6% of current year R & D expenditure or \$63,000 (6% x \$1,050,000).

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