To calculate the R&D Tax Credit, you need to complete IRS Form 6765 and include it as a part of your company’s tax return. The challenge is, your CPA can’t do it without YOUR help – you need to give him/her your total Qualified Research Expenses (QREs). In addition, the Form can be a little tricky, fortunately, we can help.
Form 6765 has four sections. You will complete either section A or section B, then you’ll complete section C and possibly section D if you qualify. We recommend running the calculation for both Section A and B and choosing whichever method gives you the larger credit.
Section A – Regular Credit
The Regular Credit equals 20% of a taxpayer’s current-year qualified research expenses (QREs) that are in excess of a calculated base amount. This can be quite complicated depending on your tax situation.
Section B – Alternative Simplified Credit
You can avoid the headache of the regular credit by leveraging the Alternative Simplified Credit (ASC). The ASC is simply 6% of your total QREs (for your first three years of claiming the Credit).
Section C – Current Year Credit
Section C takes the credit you calculated in either Section A or Section B, and addresses potential additional details that may come into play, based on your specific tax situation. Fortunately, for most taxpayers, much of this section can be ignored. If you’re not sure how to handle this, give us a call, and we’ll walk you through it based on your facts.
Section D—Qualified Small Business Payroll Tax Election and Payroll Tax Credit
This section should be completed if and only if you are making this payroll tax election. The payroll tax credit is an election for small businesses, who can claim research expenses, can apply up to $250,000 of research credit to offset social security payroll tax liability. It is important to note that filing Form 3800 is also required if you’re a qualified small business other than a partnership or an S corporation.
In order to make this election in Section D, you need to make sure you meet the definition of a Qualified Small Business. To qualify as a small business, you must be in business for less than five years, and this year’s gross receipts must be less than $5 million. Give us a call if you need help exploring this.
Was that overwhelming or complicated? Follow the below infographic, then once you have a rough idea of the numbers, fill out the form. From there, we will complete the Form 6765 for you for FREE!