The Centennial State Offers Development and Research Tax Credits to Companies who put Resources into Growing Economically Distressed Areas
Keeping up with competitive industry growth and navigating the fast-paced business world is a process that many companies have to stay on top of in order to be successful and provide value to the communities around them. What countless companies don’t know is that many US businesses who innovate and experiment qualify to receive state and federal Research and Development tax credits.
Established in the early 1980s, the Research and Development tax credit program was designed to reward businesses who continue to seek growth in their industry. In exchange for their R&D projects and activities, companies can receive a sizeable dollar for dollar reductions in tax liability.
R&D is not limited to large companies, but in the state of Colorado, these tax credits are limited by zones. In order to help areas with high unemployment rates, low capita-per-income or slow population growth, the state has created something known as the Enterprise Zone Program. This program incentives companies of any size within these 16 selected zones to undergo development and research work to help with the growth in these areas. Each zone has its own local zone administrators who manage them.
According to the state’s website, Colorado’s Enterprise Zone R&D tax credits can only be claimed by a company after they have been in the same zone for three years. A business must also be legal under both state and federal laws, which excludes companies within the cannabis industry.
Colorado’s Eligible Research and Expenses:
- Research needs to be technological in nature, useful for developing new and improved products or other factors of the business, and use experimentation
- Project and research expenses include: Wages (except fringe benefits,) supplies and payments for the rights to use computers
- Includes research expenses done by third-party contractors performed in an enterprise zone
Non-Eligible Expenses Include:
- Land or improvements to land
- Depreciable equipment
- Management surveys
- Costs for customized needs for individual customers
- Government-funded research
Calculate Colorado’s Tax Credit:
- Any business eligible for Colorado’s R&D tax credits can earn a state income tax credit for 3% of the increase in annual research and development expenses compared to what the business spent the prior two years.
- You can calculate the average expenditure as zero for the prior two income tax years if your company had no research and experimental expenditures.
- Each year for 4 years, your business will need to claim 25% of the credit.
How to Claim Colorado R&D Tax Credits:
In addition to submitting your company’s income tax, there are a few pre-certification applications that need to be submitted and approved by local enterprise zone administors. The process can be tedious and complicated, so having a team of tax professionals to help guide you through it can save you time and confusion.
At National Tax Group, our tax professionals help lead Colorado businesses through a clear step-by-step process to see if they qualify for R&D tax credits. Give our tax specialists a call at (561) 257-3436 to schedule your free initial assessment.