How do you calculate the base amount for the increase in research and development tax credit?
If an applicant does not have prior year expenses in Louisiana no base calculation will be needed. The calculation will be based solely on the current year R&D expenses. The base calculation will be based on the average of previous tax years. The calculation will be adjusted in the event there are no previous expenses in a prior year.
For example:
No Previous Years
A company with less than 50 employees incurred $210,000 in tax year 2019 and had no prior year R&D expenditures. There would be no base year. The calculation would be 30% of current years expenditures.
$210,000 x 30%, the 2019 R&D tax credit would be $63,000 – OR –
1 Previous Year
A company with less than 50 employees incurred $210,000 in tax year 2019 and had $100,00 R&D expenditures in tax year 2018.
The base calculation would be prior year times the appropriate percentage ($100,000 x 50%) which would be $50,000. In order to calculate the incremental increase in expenditures the base calculation is subtracted from the current year. The R&D tax credit is 30% of the incremental increase.
$100,000 x 50% = $50,000 base calculation
$210,000 – $50,000 = $160,000 incremental increase
$160,000 x 30% = $48,000 2019 R&D tax credit
2 Previous Years
A company with less than 50 employees incurred $210,000 in tax year 2019 and had $100,00 R&D expenditures in tax year 2018 and $150,000 in tax year 2017.
The base calculation would be the average of the prior year’s times the appropriate percentage ($100,000 + 150,000/2 x 50%) which would be $62,500. In order to calculate the incremental increase in expenditures the base calculation is subtracted from the current year. The R&D tax credit is 30% of the incremental increase.
($100,000 + 150,000/2 x 50%) = $62,500 base calculation
$210,000 – $62,500= $147,500 incremental increase
$147,500 x 30% = $44,250 2019 R&D tax credit
3 previous years applies the same rationale with using the average of the 3 prior years.
The base calculation and credit percentages will vary based on the size of the company.
View Examples of Base Calculations.
Formula:
6765
Average of three previous tax years * 80% = Base Amount
CTY R&D expenditures — Base Amount = increase in LA R&D
Increase in LA R&D * (5% or 10%) = R&D Tax Credit
LQRE – 6765
Average of three previous tax years * 50% = Base Amount
CTY R&D expenditures — Base Amount = increase in LA R&D
Increase in LA R&D * (30%) = R&D Tax Credit