New Jersey Business Owners Can Save Big with Research and Development Tax Credits

The state capital dome reflects sunlight late afternoon in downtown Trenton New Jersey

Garden State companies that invest in technology or other innovative practices can see significant rewards on their taxes.

For business owners in New Jersey, juggling the tasks of leading, delegating and managing requires both business savvy and a quality tax group partner. Leaders in industries such as service, construction and engineering should investigate how to maximize their tax savings. One of these potential cash flow options is the Research & Development tax credit, which is a federal and state tax benefit.

According to the New Jersey state website, this credit is calculated the same way as the federal tax credit; it provides a credit of 10 percent of research expenditures over a specific set amount, plus 10 percent of research payments that companies may provide to an educational institute. One big difference between New Jersey state R&D tax credits and those in other states is that only S and C corporations can apply. Partnerships and pass-thru entities are excluded.

As of 2018, the New Jersey tax benefits also included the Alternative Simplified Credit (ASC), which many company owners and taxpayers supported. New Jersey’s ASC tax credit is calculated following the federal ASC calculations, where the base amount is 50% of the previous three-year qualified research expenses, averaged. However, there are a few changes that are specific to the state, which a qualified R&D tax expert can review with companies on a case by case basis.

The first step to applying for a Research and Development is to speak with an industry professional so he or she could perform the Four-Part qualifying test.

The Four-Part Test defines R&D activities as the following:

  1. The activity creates a new or improved business element of function, performance, reliability, or quality.
  2. The activity is technological in nature and under the umbrellas of computer science, physical or biological science, or engineering.
  3. The activity eliminates uncertainty in capacity, process, or design.
  4. The activity should include a process of experimentation or evaluating one or more alternatives to achieve a result. This might include blueprints, prototypes, or calculated trial-and-error.

Call National Tax Group at (561) 257-3436 to start your free four-part test and take the first step to significant tax savings.

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