With leading industries in manufacturing, food, construction and technology, Illinois is a hot spot for research and development. Any company in the state, no matter the industry or size of the business, performing R&D activities can apply to receive lucrative tax credits.
Although most businesses perform these activities on a daily basis, they may not even know that what they do qualifies for dollar-for-dollar credits. Knowing what and how to claim these credits is crucial in helping your business secure one of the most overlooked tax incentives in the US.
What Activities Qualify Illinois Businesses For R&D Credits?
Much like the federal requirements, the state of Illinois also uses the four-part test as a determining factor of whether or not certain activities would apply for research and development tax credits. This test states that in order for a company to be eligible, they must perform research or development that involves:
- Activities performed that is technological in nature and based on hard sciences
- Activities that uncover information you don’t already know and remove any uncertainty around methods, designs, or capability related to products, processes or software.
- Activities must have a process of experimentation such as certain evaluations that result in the development of design alternatives
- Activities that improve the function, performance, reliability or quality of a product, process or software.
All activities must be performed within the state of Illinois for qualified research expenses to be covered. This includes in-house research expenses, contract research expenses and basic research payments paid or incurred by the business.
How Are These State Credits Applied?
Once you determine if your company actually qualifies for research and development tax credits, the next step would be claiming qualified research expenses.
In the state of Illinois, these credits equal to 6.5% of the qualifying research expenses that exceed the base amount with the base amount being the average qualifying expenses in the last three taxable years following the year your business is claiming these taxes. For example, if a company spent $300,000 last year in research and development and spends $600,000 this year, they will receive $18,000 of the $300,000 that exceeded the base amount.
Any credits that are not used can carry over for the next five years. In the state of Illinois, partners, shareholders and subchapter S corporations can also get tax credits based on either determination of income or distribution of shared income.
How Can You Claim These Credits
To receive these credits, businesses must get together documents like engineering documentation and other paperwork outlining activities performed, cost of wages, cost of materials, subcontractors activities, etc.
This can be a long and complicated process. That is why having a team of experienced tax specialists to help will ensure that your company is not only claiming these activities correctly but also claiming every activity that would qualify. Call our team at (561) 257-3436 for an initial assessment to find out if you apply for these lucrative tax credits.