California R&D Tax Credit
Is the California R&D Tax Credit Worth it for Startups? YES. If your startup had R&D activities in California, you very well likely qualify for the California R&D Tax Credit. Across the 500+ startups we worked with in 2020, all were eligible for the California Research and Development Tax Credit if they had qualifying research and development activities in California.
What is the California Research and Development Tax Credit?
The California R&D Tax Credit is designed to increase research and development activities within California. If your startup has eligible research and development activities in California, you will qualify for the California Research and Development Tax Credit. The California Research and Development Tax Credit is based on the Federal R&D Tax Credit.
Is My Startup Eligible for the California R&D Tax Credit?
If you secured the Federal R&D Tax Credit, and you had research and development activities within California, you very most likely qualify for the California Research and Development Tax Credit.
What Goes Into The California R&D Tax Credit as a Qualified Research Expense (QRE)?
- Wages: but only for those people who engage in R&D activities within California.
- Subcontractors: engaged in research and development within California
- Supplies: direct supplies that were related to the R&D project and that weren’t classified as an asset, and were within California
- Computer Leases/Rentals: within California, such as AWS
Where do I apply for the California R&D Tax Credit?
Apply for the California R&D Tax Credit on form FTB 3523, 6765, and 3800, which is a part of the 1120 C-Corporation Income Tax Return, due 4/15 every year and can be extended to 10/15 every year.
How Much Credit Will My Startup Receive from the California R&D Tax Credit?
Your startup will receive about ~7% of Qualifying R&D Expenses, which differs from the Federal Qualifying Research and Development Expenses rate of ~10%.
How Does the California R&D Tax Credit Differ From The Federal Payroll R&D Tax Credit?
Unlike the Federal Payroll R&D Tax Credit, the California Research and Development Tax Credit does NOT offer an instant gratification cash refund. Your startup will only be able to use these credits once it becomes profitable within California.
When Can I Expect to Receive My Startup’s California R&D Tax Credit?
The California R&D Tax Credit will only apply to your taxes once your startup becomes profitable. Hence, you will only receive the benefit in the future once your startup becomes profitable.
Since the California R&D Tax Credit does not offer cash back like the Federal R&D Payroll Tax Credit, is it still worth the time and effort to complete?
YES! While you do not receive the instant gratification of the Federal payroll tax credit, you can still accrue the state R&D tax credits for use in future profitable years. Once the Federal Research and Development Tax Credit is complete, it only takes a marginal amount of work to complete the California R&D Tax Credit . Your startup should still get the Research and Development Tax Credit because acquirers look favorably upon traditional tax credits and NOLs that they might be able to use.
Who administers the California R&D Tax Credit?
The California Franchise Tax Board administers the California Research and Development Tax Credit.
Where Can I Find More Information on The California R&D Tax Credit?
If you are interested in more details about the California Research and Development Tax Credit Program, click here
