The California research and development tax credit (RDC) is a longstanding tax savings opportunity available to taxpayers in the state. It can be taken advantage of in two ways:

It is a tax program that allows you to reduce your tax liability when you engage in specific research and development activities. It can get complicated, but in short, if you engage in R&D activities, there may be significant reductions available to you on both of your tax returns, personal and corporate. The credits available are up to 15% of the excess of certain types of research expenses (over the base amount); there is also an opportunity for a credit of 24% of basic research payments.

Eligible entities include:

There are differences between the California RDC and the Federal R&D Tax Credit. There are also some variations with the California program which need to be assessed to determine the optimum path for your particular organization. You will likely need to access some expertise in the field to get to the specifics which are best for you.

The intent of the RDC is to spur research activity within the state; many other states have similar programs in place, so there is an element of interstate competition within the program. It’s an ongoing attempt by the state to try and attract what it considers desirable economic activity - that is, the type that contributes to high growth.

It’s a complex program; there are a lot of requirements and prerequisites. There have also been several changes to it over the years, impacting eligibility, and reflecting the changes in the business and commerce landscape over time. Still, the financial benefits are significant, and well worth pursuing.

If your firm is involved in research and development, you should see if you are eligible to take advantage of the credits offered. We would be happy to sit down with you, and go over the particulars of your R&D activities, and how they may fit with the California R&D Tax Credit program.