It’s back. The research credit, which had expired, was reinstated retroactive to Jan. 1, 2014, by the Tax Increase Prevention Act (TIPA).
Strategy: Claim the research credit on your company’s return with no reservations.
Of course, this reprieve is only temporary because the TIPA reinstatement expired again on Dec. 31, 2014. But the conventional wisdom is that the research credit will be extended for 2015.
Here’s the whole story: The research credit for 2014 is generally equal to 20% of the excess of qualified research expenses for the year over a base amount. The base amount is a fixed-base percentage (not to exceed 16%) of average annual receipts from a U.S. trade or business, net of returns and allowances, for the four years prior to the year of claiming the credit. It can’t be less than 50% of the annual qualified research expenses. Thus, the minimum credit is equal to 10% of qualified research expenses (50% times 20%).
Alternatively, a business may claim a simplified credit equal to 14% of the amount by which qualified expenses exceed 50% of the average for the three preceding tax years.
To qualify for the credit, expenses must be undertaken to discover information that is technological in nature and intended to be useful in the development of a new or improved business component. It may include research for new products, improvement of existing products, qualification testing, patent testing and more.