R&D Credit

hunnypuppy · #1 (**permalink**) 07-20-2016, 06:19 PM

I have a question about R&D credits and how they work. My software product development business is generated some income this year. I"m told that the R&D credits (a little less than 5% of the wages paid and development expenses as calculated by my CPA) would need to be added back to the income to take the credit.

Why would one add back the credit to income and then take a credit? Wouldn't that defeat the purpose of the credit? What options are available for taking R&D credits and how should one calculate it?

Wnhough · #2 (**permalink**) 07-20-2016, 10:46 PM

I have a question about R&D credits and how they work. My software product development business is generated some income this year. I"m told that the R&D credits (a little less than 5% of the wages paid and development expenses as calculated by my CPA) would need to be added back to the income to take the credit.

Why would one add back the credit to income and then take a credit? Wouldn't that defeat the purpose of the credit? What options are available for taking R&D credits and how should one calculate it?======>> The R&D credit is a nonrefundable tax credit reducing your taxable income; to add back the credit to income and then take a credit is I guess a way of calculating the proper amount of the credit based on perhaps gross or AGO or etc. .Say, if you would normally owe $10K and have a $5K tax credit for R&D, you owe $5K. If you have a $12K credit, you owe nothing, but the IRS will not give you a $2K refund. You need to use Form 6765 to calculate the amount of the credit. The form provides a regular credit and an alternative simplified credit.

For your state return, youneed to contact dept of rev. of your state to know if you need to add or subtract it on your state return.
In some state, CA, the CA R&D Credit reduces income or franchise tax.. You receive 15 % of the excess of current year research expenditures over a computed base amount ,minimum of 50 percent of current year research expenses. You may claim the credit on the return for the taxable year you incurred the qualified expenses.

hunnypuppy · #3 (**permalink**) 07-21-2016, 01:44 PM

Quote:

Originally Posted by Wnhough

I have a question about R&D credits and how they work. My software product development business is generated some income this year. I"m told that the R&D credits (a little less than 5% of the wages paid and development expenses as calculated by my CPA) would need to be added back to the income to take the credit.

Why would one add back the credit to income and then take a credit? Wouldn't that defeat the purpose of the credit? What options are available for taking R&D credits and how should one calculate it?======>> The R&D credit is a nonrefundable tax credit reducing your taxable income; to add back the credit to income and then take a credit is I guess a way of calculating the proper amount of the credit based on perhaps gross or AGO or etc. .Say, if you would normally owe $10K and have a $5K tax credit for R&D, you owe $5K. If you have a $12K credit, you owe nothing, but the IRS will not give you a $2K refund. You need to use Form 6765 to calculate the amount of the credit. The form provides a regular credit and an alternative simplified credit.

For your state return, youneed to contact dept of rev. of your state to know if you need to add or subtract it on your state return.
In some state, CA, the CA R&D Credit reduces income or franchise tax.. You receive 15 % of the excess of current year research expenditures over a computed base amount ,minimum of 50 percent of current year research expenses. You may claim the credit on the return for the taxable year you incurred the qualified expenses.

Thanks. So in the case where the credit is added back to revenue I'm assuming that part will also be carried over into next year to get the remaining deduction which would have otherwise made for a negative refund.