Connecticut R&D Tax Credit

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Connecticut offers taxpayers two R&D tax credit options - The Research and Experimental (Incremental) Expenditures Credit and the Research and Development (Non-Incremental) Expenditures Credit.

Connecticut offers taxpayers two R&D tax credit options - The Research and Experimental (Incremental) Expenditures Credit and the Research and Development (Non-Incremental) Expenditures Credit.

Both the Incremental Credit and the Non-Incremental Credit are different from the federal R&D credit in some of the following key ways.


Incremental Credit (RC Credit):

  • Equal to 20% of the amount spent by a corporation on research and experimental expenditures over the amount spent on such expenditures incurring in the previous tax year
  • Can potentially reduce up to 70% of business tax liability
  • When gross income is $70 million or less with no tax liability, the credit can be partially refundable
  • Can be carried forward up to 15 years for tax years on or after January 1, 2021. For tax years before January 1, 2021, the credit carryforward time period is unlimited
  • Only C-corps filing Form CT-1120 can apply for the credit, (it does not apply to S-corps)


Non-Incremental Credit (RDC Credit):

  • For Qualified Small Businesses, the credit is equal to 6% of research expenditures
  • Qualified Small Businesses are defined as businesses with a gross income for the previous income year that does not exceed $100 million and has not met the gross income test through transactions with a related person
  • For all other businesses, the credit is based on total research and development expenses
  • Refundable
  • Can be carried forward up to 15 years
  • Only C-corps filing Form CT-1120 can apply for the credit (it does not apply to S-corps)


You can read more about the Connecticut Incremental here and Non-Incremental Credit here.

What is the Connecticut R&D Tax Credit?

R&D tax credits, also known as the Research and Development credit, enable businesses to potentially receive a tax credit on qualified research expenditures that have been incurred within the state of Connecticut. Taxpayers might qualify for either the Incremental Credit or the Non-Incremental Credit if they paid for (or incurred) Qualified Research Expenses.

What are Qualified Research Activities in CT?

Qualified Research Activities in CT can include the below:

Creating improved products, processes, formulas, software, and techniques
Automating or improving internal manufacturing processes
Designing tools, jigs, fixtures, and molds
Integrating new equipment
Development of data centers, big data, and data mining tools
Integration of APIs and other technologies
Development of financial or pricing models
Manufacturing new or improved products
Developing prototypes, first articles, models
Evaluation of alternative materials
Development of firmware
Network hardware and software development and optimization
Developing simulators
Development of risk management systems
Hiring outside consultants to perform any of the listed activities

The following expenses do not qualify, according to the CT State Department of Revenue Services:

Overhead and general and administrative expenses relating to a corporation’s activities as a whole and do not contribute directly to the research and development effort
The ordinary testing or inspection of materials or products for quality control, for efficiency surveys, management studies, consumer surveys, advertising or promotions, for research in connection with literary, historical, or similar projects
Costs of acquiring another’s patent, model, production, or process.

Eligibility:
CT R&D Tax Credit

Qualified Small Businesses and C-Corporations conducting qualified research activities are eligible for either the Incremental Credit or Non-Incremental Credit.
The R&D tax credit can be applied to a wide variety of industries that extend beyond research labs and includes startups.

The R&D tax credit can be applied to a wide variety of industries that extend beyond research labs and includes startups.

Find out if you qualify for the CT research credit.

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How the R&D Tax Credit Works in CT

What Information is Needed?

Properly claiming the R&D tax credit can be difficult without the right expertise - That’s where GOAT.tax comes in. Our R&D tax credit software identifies any qualified research expenses your company paid and qualified research activities to ensure you receive the largest refund possible.

These qualified expenses typically include employee compensation, contracted services, and materials. Typical forms needed for proof often include payroll records, detailed financial records, and vendor invoices.

Meeting the Four-Part Test

All companies in Connecticut (regardless of industry, size, or revenue) that perform these qualified research activities must satisfy the following criteria of the IRS Four-Part Test as outlined in IRC §41(d):

1. Business Component Test
The activity must be related to the performance, quality, reliability, or new or improved function of a business component of the taxpaying company. A business component is defined to be “any product, process, software, technique, formula or invention used by the taxpaying company in trade or business.”
2. Technological Uncertainty Test
The activity must involve the elimination of uncertainty. An activity entails uncertainty if the taxpayer did not know one or more of the following:

  • Whether the desired results could be achieved.
  • The specific means of achieving the desired result.
  • The appropriate design of the business component is being developed.
    3. Process-of-Experimentation Test
    “Substantially all” of the activity must involve a “process of experimentation” involving more than one possible approach toward achieving the result, where the capability or method of achieving the result is uncertain at the outset of the activity.
    4. Technological‐in‐Nature Test
    Activities that are undertaken to discover information must be technological in nature. For example, experiments used to eliminate uncertainty must rely on principles of physical or biological sciences, engineering, or computer science.

    Credit Carryforward

    The Incremental tax credit can be carried forward up to 15 years for tax years on or after January 1, 2021. For tax years before January 1, 2021, the credit carryforward time period is unlimited.

    The Non-Incremental tax credit can be carried forward up to 15 years.

    R&D Tax Credit Calculation Method

    For the Incremental Credit, multiply by 20% the excess of the research and experimental expenditures conducted within the state of CT during the current income year over the amount spent on expenses during the previous income year.

    For the Non-Incremental Credit, Qualified Small Businesses can receive a tax credit equal to 6% of the R&D expenses. For other businesses claiming the Non-Incremental Credit, the calculation method will depend on total R&D expenses from that tax year.

    How To Claim Your Connecticut R&D Tax Credit

    To claim the CT Incremental or Non-Incremental Tax Credit, complete Form CT-1120 RDC and attach it to Form CT-1120K.

    Connecticut R&D Tax Credit From The Experts: GOAT.tax

    GOAT.tax was created for the purpose of educating businesses on the R&D tax credit and assisting companies that qualify for the credit to claim it. Through the 305+ years of collective automating R&D tax credit experience across our nationwide team of over 50 R&D tax professionals, we have been able to take all the guesswork out of this complex tax credit incentive. The experts at GOAT.tax can help your business with automating R&D credit through our innovative platform.
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    Hire US-based engineers, developers, or scientists.
    Designs and develops product prototypes and/or software.
    Performs experimentation and validation on products, manufacturing processes, and/or software.
    None of the above.

    This calculator has been developed utilizing data from a variety of studies conducted in the industries listed. This is only an approximation based on a variety of assumptions and should be treated as such.

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    Based on your responses, we believe that you are not currently eligible for the R&D tax credit.

    Please check back with us if you perform any product or software development-related work in the future.

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