Introduction
Delaware offers Research & Development (R&D) Tax Credits to encourage businesses to invest in innovation, technology, and product development. Companies that qualify can claim substantial tax savings, reducing their Delaware state income tax liability.
This guide explains who qualifies for the Delaware R&D Tax Credit, how to calculate the credit, and how to claim it.
What Is the Delaware R&D Tax Credit?
- The Delaware R&D Tax Credit allows businesses to claim a percentage of qualified R&D expenses as a tax credit.
- The credit is based on federal R&D tax credit rules and applies to businesses that conduct research in Delaware.
- Businesses that qualify can use the credit to offset Delaware corporate or personal income taxes.
Who Qualifies for the Delaware R&D Tax Credit?
- Businesses that perform qualified research activities in Delaware.
- Companies that pay qualified research expenses (QREs) related to innovation and development.
- The research must be technological in nature and aim to develop new or improved products, processes, or software.
Examples of Eligible Industries
- Technology & Software Development
- Pharmaceutical & Biotech Companies
- Manufacturing & Engineering Firms
- Renewable Energy & Green Technology
How Is the Delaware R&D Tax Credit Calculated?
- 10% of Delaware’s apportioned share of the federal R&D tax credit.
- Small businesses (gross receipts under $20 million) qualify for a 20% credit instead of 10%.
Example Calculation
- Federal R&D Credit: $50,000
- Delaware Apportioned Share: $40,000
- Standard Delaware R&D Tax Credit (10% of $40,000): $4,000
- Small Business R&D Tax Credit (20% of $40,000): $8,000
How to Claim the Delaware R&D Tax Credit
Step 1: Identify Qualified Research Expenses (QREs)
- Wages paid to employees working on R&D projects.
- Supplies used in the research process.
- Contract research expenses paid to third-party firms.
Step 2: File Federal R&D Tax Credit (Form 6765)
- Businesses must claim the federal R&D credit first, as the Delaware credit is based on it.
Step 3: Complete the Delaware R&D Tax Credit Application
- File the Delaware Division of Revenue’s R&D Tax Credit Form.
- Submit all required documentation and calculations.
Step 4: Apply the Credit to Your Delaware Tax Return
- C-Corporations – Use the credit to offset Delaware corporate income tax.
- LLCs, S-Corps, and Partnerships – The credit passes through to business owners, reducing their personal state income tax.
Delaware R&D Tax Credit Deadlines
- Application Deadline: September 15 of the following tax year.
- Delaware Corporate Tax Return Deadline: April 15 (or extended due date).
Maximizing R&D Tax Credits
- Document all research-related expenses carefully to maximize the credit.
- Work with a CPA to ensure compliance with IRS and Delaware requirements.
- Apply before the deadline to claim the full tax benefit.
IRS Compliance & Tax Forms
- Form 6765 (Federal R&D Tax Credit Form)
- Delaware R&D Tax Credit Application
- Form 1120 (C-Corp Tax Return) or Form 1040 (Schedule C for LLCs & Sole Proprietors)
Conclusion
The Delaware R&D Tax Credit provides significant tax savings for businesses investing in innovation and technology. Companies that conduct qualified research in Delaware should take advantage of this valuable incentive to reduce tax liability.
For expert tax planning and assistance with claiming R&D credits, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. What qualifies as R&D for the Delaware tax credit?
Any technological research aimed at developing new or improved products, processes, or software.
2. Do startups qualify for the Delaware R&D tax credit?
Yes, small businesses can receive a higher 20% credit on qualified research expenses.
3. Can I claim both federal and Delaware R&D tax credits?
Yes, businesses must first claim the federal credit before applying for the Delaware R&D tax credit.
4. What is the deadline to apply for the Delaware R&D tax credit?
The application must be submitted by September 15 of the following tax year.
5. Should I hire a CPA to claim R&D tax credits?
Yes, a CPA ensures proper documentation, compliance, and maximization of tax savings.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA). He specializes in business tax planning, R&D tax credits, and corporate tax compliance.
Schedule a consultation today with Anshul Goyal, CPA, to maximize your R&D tax credit benefits.