For this month’s “What’s Happening in Your State?” series, we’re excited to talk about a state with a very lucrative R&D credit – Indiana!
The Indiana R&D credit has been around for quite some time and the qualification requirements closely mirror the federal definitions contained within Section 41 of the Internal Revenue Code, with a few exceptions. Qualified research expenses occurring in Indiana for qualified activities are capturable towards the Indiana R&D credit.
How to calculate your R&D Credit in Indiana ?
First, there are two methods for calculating the Indiana R&D credit. Both methods are similar to the federal calculations, with slightly lower calculation percentages. The regular method calculation is equal to 15% of the taxpayer’s qualified research expenses for the taxable year minus the base period amount up to $1,000,000. The credit percentage changes to 10% for any excess of Indiana qualified research expenses over $1,000,000. For perspective, the federal R&D credit is equal to 20% of the taxpayers qualified research expenses for the taxable year minus the base amount, with no limit.
The alternative simplified credit calculation is equal to 10% of the excess of the current year Indiana expenses minus 50% of the average Indiana expenses for the three previous years. If the taxpayer does not have expenses during any of the three previous years, the credit is equal to 5% of the current year’s Indiana expenses. The federal alternative simplified credit calculation is 14% of the current year qualified expenses minus 50% of the average federal expenses for the three previous years.
There are additional calculations for taxpayers involved in the production of civil and military jet propulsion. Indiana allows a 10-year carryforward period for any unused R&D credits. The federal credit can be carried forward for up to 20-years.
While the Indiana R&D credit calculation is quite as high as the federal credit, this state R&D credit can still be lucrative! Most companies located in Indiana are paying quite a bit in state income tax, and the R&D credit is a great way to put money back in the pockets of the taxpayer!
Interested in learning more about how your company may be able to take advantage of the R&D credit? Submit your information here!