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Federal and State Research Incentives

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Federal Increasing Research Credit
The increasing research credit, commonly referred to as the research & development (R&D) credit is an incremental credit that reduces federal income or payroll tax (for qualifying businesses) dollar for dollar. It is calculated as a percentage of the excess of qualified research expenses in a tax year over a base amount. Currently, the law allows a carryback of one year and a carryforward of twenty years.

Qualified research expenses are costs incurred by a business toward the design and development of new processes or products. While hi-tech or software industries typically come to mind when claiming these credits, qualifying activities vary across many different industries. These include, but are not limited to:

• Engineering
• Agriculture
• Architecture
• Construction
• Food & Beverage production (including beer & wine making)
• Biotech & Pharmaceutical
• Medical Sciences
• Manufacturing/Fabricating, including precision sheet-metal, plastics, cement fabrication, ironworks, etc.
• Software & Technology
• Visual/movie effects/ graphic design
• Aerospace
• Textile
• Tool & Die
• Environmental & Waste Management

State Research Credits
Many states offer research credits like the federal credit with varying exceptions, limitations, and methods of calculating the credit. California, Arizona, Colorado, Texas, Illinois, Florida, and Pennsylvania are just some states that offer research credits.

Federal Employee Retention Credits
The Covid-19 pandemic affected many businesses and non-profits. With the passage of the CARES Act in 2020, then enhanced, modified, and extended by the Consolidated Appropriation and American Rescue Plan Acts of 2021, any business or non-profit that experienced either: 1) a significant reduction in gross receipts in any quarter for the period starting March 12, 2020, through December 31, 2021 (as compared to the same quarter in 2019), or, 2) government mandated restrictions or closures of operations, are eligible for federal relief. The Employee Retention Credit (ERC) is a refundable payroll tax credit generated from the employer's portion of social security taxes paid on employee wages. Employers whose employment tax deposits are not sufficient to cover the credit can use the excess credit as an advanced payment of employment taxes.

Beginning March 12, 2020, through December 31, 2020, up to $5,000 in credits can be generated per employee.
Beginning January1, 2021, $7,000 in credits can be generated per employee per eligible quarter.

These credits are available to any eligible business or non-profit even if they received a Payroll Protection Program (PPP) Loan and forgiveness. However, claiming the ERC can be complicated as there are many considerations that would be required. MBI has developed the experience and knowledge of applicable IRS Code Sections and Notices needed to navigate through this complexity.

Federal Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credits (WOTC) are federal income tax credits available to any business operating within the United States that hires employees meeting eligibility criteria. This includes: long-term unemployed having received unemployment insurance payments, IV-A recipients (member of a family receiving Temporary Assistance for Needy Families); qualified military veterans, qualified ex-felons, employees between the ages of 18-39 who reside in Federally designated communities, vocational rehabilitation referrals, recipients of SSI or food stamps, and long-term family assistance recipients.

Depending on hours worked and qualifying category, each employee can generate anywhere from $1,200, $2,400, $4,000, or $9,000 over their first two years of employment in federal tax credits.

As the application period for an employee's certification is typically limited to their first 28 days of hire, the process to request certification requires our prompt attention. Our screening process is critical to securing these credits on behalf of our clients.

As the application period for an employee's certification is typically limited to their first 28 days of hire, the process to request certification requires our prompt attention. Our screening process is critical to securing these credits on behalf of our clients.

COST SEGREGATION

With the purchase, improvement, or construction of any real property, it is important to dissect the costs to distinguish between tangible personal property classified under IRC section 1245, or real property classified under IRC section 1250. The type of classification determines how quickly you can recover those costs for tax purposes. Certain improvement costs may also qualify for additional depreciation in the year incurred.

Reclassification of real property to eligible personal property and identifying qualifying costs for special treatment can result in significant tax savings.