The research credit, often referred to as the R&D credit, that has been available to taxpayers since 1981 has recently been extended two years to December 31, 2011. While this extension is beneficial for the interim, many associations and organizations have been pushing for a permanent research credit to be enacted.
The research credit (in its basic form) allows taxpayers a 20% credit for qualified research expenses that exceeds their base amount. The base amount is calculated by taking the taxpayer’s fixed-base percentage times the average gross receipts for the four preceding tax years. The base amount calculated cannot be less than 50% of the current year qualified research expenses. The fixed-base percentage for taxpayers incurring research expenses after 1988 is 3%. Examples of qualified research expenses include:
- Wages and supplies related to qualified research
- A portion of computer use costs related to qualified research, and
- 65% of contractor costs for qualified research performed on the taxpayers behalf.
For all of the details on the research credit calculation (for example, the differences in the calculation for energy research payments and for some university research payments), post a comment below, contact our Biotech Group at (440) 449-6800 or see the website for The Joint Committee on Taxation at www.jct.gov and search JCX-55-10 for a description of the legislation.