R&D Tax Credit 2024 – New Changes to Claim Refund, Eligibility and Other Details!

The IRS has updated the required information for a valid research credit refund on 18 June 2024. The US people can catch up with the changes in Form 6765 (research credit) for the 2024 tax year and amended returns from the article. 

R&D Tax Credit 2024

The US governments provide a tax incentive to companies engaging in research and development activities through an R&D tax credit that allows businesses to reduce tax liability. The government aimed to encourage R&D activities in the companies and help them with costs associated with these activities through this credit. 

The agency revised the R&D tax credit earlier in January 2024, where they increased the payroll tax research credit from $250,000 to $500,000 for small businesses applying against payroll tax liability from the tax year after 2022. 

Now, the agency has again introduced some changes to the required information for a valid research credit refund on 18 June 2024. The new update will decrease the complexity of the claim process of the R&D credit refund for small and big companies in the US.  

IRS New Changes to R&D tax Credits Refund claim

According to the latest updates, the IRS announced waiving the two items of information required to claim the refund involving Research credit. The following update is effective from 18 June 2024, the taxpayers do not provide the following two information while claiming the R&D credit:

  • Names of individuals performing the research activity on which you are claiming the tax credit. 
  • You don’t need to present information on individual discovery in the research activity. 

However, the taxpayers still need to provide the following information to claim the refund under Research tax credits while filing the return with the IRS:

  • Taxpayers must identify the business components under IRC Section 41 for the tax year. 
  • The taxpayers must identify all the research activities performed for each identified business component. 
  • The taxpayers claiming the R&D credits must provide the total qualified supply expenditure, qualified employee wages cost, and total qualified contract research cost for the claim year under the Qualified Research Expenses (QREs).

The IRS has waived the two pieces of information to claim the R&D tax credit refund, however, if the claim goes under examination the agency can request the above information from the taxpayers. 

Who can claim the R&D Tax Credit 2024?

The R&D tax credit has specific rules and requirements for companies to determine the eligibility for the credit refund. The four-part test that determines qualifies research activity for R&D tax credit eligibility is as follows:

  • The research activity should be performed to improve the performance, operation, reliability, and quality of the existing or new business components. 
  • The research activity should be technological in nature, meaning the activities should rely on the principles of engineering/computer science, biological science, or physical.
  • The research activities eliminate the uncertainty concerning the performance and improvement of the business component. 
  • The research activities should have a process of experimentation like modeling, testing, simulating, trialing, and final products. 

Eligibility for businesses to qualify for the R&D tax credit 2024: 

  • The businesses must engage in the above-mentioned qualified R&D activities. 
  • The research activity should be performed in the United States. 
  • The businesses must have solid documentation of the expenses incurred during the research and development activities to qualify for the R&D tax credits. 

Small businesses including S Corporation or partnership eligibility:

  • The gross receipt of the small business should be less than $ 5 million for the tax year.
  • The business should have no gross receipts for the tax year ending before the five-tax-year period. 

The small business should fulfill the above criteria to come under the category of Qualified small business for the R&D tax credits and receive the increased payroll tax credits.

How to claim the R&D Tax Credit 2024?

The businesses can claim the R&D tax credits through your tax return for the tax year in which you have incurred the R&D-qualified activities expenses. The taxpayers can claim the R&D tax credit by filing Form 5765 with their tax return. 

Taxpayers will need to provide the relevant documents required for the verification of the claim, like invoices, receipts, oral testimonies, lab results, and other records to present the nature of their R&D activities and qualify under Section 41. 

 

Taxpayers filing the amended return can file the credit refund claim as the IRS has extended the one-year transition period to two years till (10 January 2025), in this period the taxpayers will have 45 days to claim the refund before the IRS final determination on the claim. 

Will the government change in R&D Tax Credit 2024?

The US government has proposed some changes to the R&D tax credit form 6765 to verify the taxpayers and provide relevant proof to settle their claims easily. According to the news, the government may amend Section 174 for the companies. 

The taxpayers would need to present the amount of qualified research for each project and component of the company whether any acquisitions or placement happen in the year. The taxpayers may have to provide comprehensive descriptions of the experimentation discoveries and alternative analyses for each component and project. 

The proposed changes may become effective for the 2024 tax year when taxpayers claim the R&D tax credits refund. The taxpayers are advised to keep a detailed record of the research and development activities with the cost and expenses of the research to receive the R&D tax credits in the coming years. 

The IRS and the US government continue to make efforts to reduce the complexity of the R&D tax credit claim process and to make the tax credit fairer to the taxpayers. The taxpayers can receive up to 12-16 cents for every qualified dollar under the R&D tax credits, so make sure you are up-to-date with the current happening of tax credits. 

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