Georgia R&D Tax Credit: Boost Innovation & Save on Taxes

If you’re a Georgia business on the up-and-up in research and development, you understand how expensive it can be to contribute to advancements in your field. By using all research and development tax credits and deductions you can find, you can save money while making your business more valuable and profitable in the long run.

Research and Development tax credits are useful in mitigating the costs of research, and Georgia offers incentives to encourage businesses to invest in innovating within the state. This article will cover the R&D tax credit available to businesses in Georgia, eligibility criteria, calculation, and the process for claiming these credits.

What are Georgia R&D Tax Credits?

The Georgia Research and Development tax credits are deductions in state income tax liability that encourage businesses to invest in research and development activities within the state. These reductions provide financial relief that can either be reinvested into research and development to garner more reductions in the future or can be reinvested into other business priorities.

The purpose of this credit is to assist in innovation, boost economic growth, and enhance competition between Georgia-based businesses in the same field. The Georgia research and development tax credits align closely with the federal IRC code 41, which is the credit for increasing research activities for businesses in the United States.

This makes it easier for businesses looking to add qualified research expenses to both their state and national tax credits. The research tax credit in the state of Georgia is available any taxable year beginning or after January 1st, 2012.

Does Georgia have an R&D credit?

Yes! The R&D tax credit provided by the state of Georgia can be claimed on your tax returns. This only applies to businesses within the state of Georgia and can be used to reduce liability by reporting your qualified research expenses. This makes it very valuable to business owners looking for financial relief from their tax burden.

Eligibility Criteria for Georgia R&D Tax Credits

To preliminarily qualify for the research tax credit, your business must have accrued qualified research expenses in Georgia that exceed a base amount. This is available to businesses and entities of all sizes, ranging from startups to established enterprises.

The larger indicator of eligibility is the research activities themselves. This is because while accruing these expenses in Georgia is a start to claiming the research tax credit, you have to document and provide your research activities to be approved for the tax credit.

Four Part Test for Qualifying Activities

To determine eligibility for your expenses under the Georgia research tax credit, there is a four-part test to ensure that they fall under the legal definition of research:

Technological in Nature

For your research to count towards your overall reduction in liability, it must rely on principles of physical sciences, biological sciences, computer science, and engineering. This is to ensure that businesses are focused on innovation in the industry instead of increasing their profit margins, which would be seen in research with subjects in marketing and finance.

Permitted Purpose

The purpose of the research must be to create something new that can be used in the field. This can include creating a new or improved product, process, or software that can be used to create a better customer or manufacturing experience.

Eliminate Uncertainty

The research must aim to eliminate uncertainty or improve a product or process that the field uses. This means that there has to be a problem that the research is directly addressing instead of relying on solutions that have already been found. This ensures the tax credit is being used to create processes that will benefit the field as a whole rather than just the business.

Experimentation

The research that you claim on the tax credit must involve a process of experimentation, meaning that it has to have forms of trial and error. Make sure you document new product attempts and other test runs of the things you create or change to fulfill this requirement.

How to Calculate the Georgia R&D Tax Credit?

The Georgia research and development tax credit is calculated at 10% of the excess of qualified research expenses over the base amount. Overall, the credit can offset up to 50% of a company’s positive taxable net income tax liability after all of your other tax credits have been applied.

The base amount is determined using a gross receipts factor. Businesses with no Georgia gross receipts during any of the three preceding tax years are included by multiplying the current year’s Georgia gross receipts by 30%. There isn’t a cap on the number of tax credits that you can claim for research and development, meaning that you can claim as many as you qualify for.

Carryforwarding the Georgia R&D Tax Credit

Any credits that you don’t use can be carried forward for 10 years. These excess credits can also be used against state payroll withholding, which gives businesses a lot of flexibility and financial benefit for claiming as much as they can.

Georgia Qualifying Research Expenditures 

Qualifying research expenses include three major categories that you can claim under:

Wages

These wages are paid to employees who are directly involved in research and development activities can be claimed as a research expense, this includes both people actively involved in research and supervisors or managers for the research projects. These wages have to be directly related to the research project, so make sure to track the number of hours that your workers are dedicating to their research projects versus normal business operations.

Supplies

Supplies that are used in the conduct of research can be claimed as well! These include prototypes, testing materials, and lab supplies that are used during your experimentation. It’s important to specifically label and document what is used for your research project, as supplies used in normal business operations wouldn’t be claimable under the tax credit.

Contracted Research

Expenses related to contracted research that is conducted by entities outside of the claiming organization can be included as qualified expenses. The research that the entity is creating must fall within the four-part test for qualifying activities, meaning that it is imperative to ensure that all documentation of these activities is given to the entity trying to claim the Georgia research tax credit.

How to Claim the Georgia R&D Tax Credits?

While claiming this tax credit for retail businesses seems easy, it is a super complicated process that requires a lot of documentation, so consult a certified public accountant. The following steps are a simplified version of the process but should apply to all business entities:

• File Form IT-RD: Businesses must file this form with the Georgia Department of Revenue when submitting their state income tax return. This includes calculations of the tax credit from the state of Georgia, taxpayer information, and the actual credit application itself.
• Complete Federal Form 6765: The credit for increasing research activities also needs to be filled out, and it includes regular credit calculation, alternative simplified credit calculation, and the current year’s credit information.

After filling out these two forms, following the instructions line by line, have a certified public accountant look it over before you send it in. This will ensure you get the most out of your credit for the taxable year, which can be very financially beneficial.

Get the Most Out Of Your Tax Credit Today!

If you’re ready to get the financial benefits of research conducted in Georgia, you’ve come to the right place! Our network of CPAs are here to help you claim the most out of your research tax credit, ensuring that you get the most out of your tax year.

At TaxCredits, we have all of the taxation information that you need to start researching the best tax credits and deductions for you.

FAQs

What is the investment tax credit for manufacturers in Georgia?

The investment tax credit for manufacturers is a valuable incentive for businesses that are looking to grow and expand operations in Georgia. By providing an overall reduction in your tax liability, manufacturers are free to create jobs and grow economically within the state. This is available to manufacturers and telecommunications companies that have operated a manufacturing facility in Georgia for at least three years.

Can software development activities qualify for the Georgia research tax credit?

Yes! Software development activities that follow the four-part test for qualifying activities are eligible to be claimed under the credit. Make sure to document your testing of the software, as it will help it achieve the experimentation part of the eligibility test.

Are there specific industries that benefit more from the Georgia research tax credit?

While the tax credit can benefit all businesses, businesses with a focus on sectors like technology, engineering, manufacturing, and pharmaceuticals often have more qualifying research activities to claim on the credit, leading to higher amounts in those sectors.