Minnesota R&D Tax Credit

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R&D tax credits for Minnesota

If you have a business in Minnesota engaged in research and development, you may be eligible for the Minnesota R&D Tax Credit. The credit is intended to encourage companies to invest in research and development activities that will create new jobs and spur economic growth in the state.

Your business must be engaged in qualified research and development activities as defined by the Internal Revenue Code to be eligible for the credit. The credit is equal to 10% of eligible research and development expenses (up to $2million or 2.5% for costs over $2 million). It can be applied against the Minnesota corporate income tax, individual income tax, or franchise tax.

Suppose your business is engaged in qualified research and development activities in Minnesota. In that case, you may be able to take advantage of the Minnesota R&D Tax Credit and save money on your taxes. Contact a tax professional to learn more about the credit and how it can benefit your business.

How Do I Claim The Minnesota R&D Tax Credit?

You must complete and file Form M-735 with your Minnesota tax return to claim the credit. You will need to include information on your research and development activities, expenses, and employees.

The credit is allocated to the individual shareholders or partners for S corporations and Partnerships and included on their Minnesota tax returns. It’s refundable between 2010 to 2012, while C corporations may carry forward credits before 2010 – 2012. If you are a taxpayer starting from 2012, the credit is non-refundable but may be carried forward for up to 15 years.

What Activities Qualify For The Minnesota R&D Tax Credit?

Your business must be engaged in qualified research and development activities as defined by the Internal Revenue Code to be eligible for the credit. These activities can include:

  • Developing new or improved products
  • Developing new or improved processes
  • Developing new or enhanced software
  • Performing basic or applied research activities

How Much Is The Minnesota R&D Tax Credit Worth?

The credit is equal to 10% of eligible research and development expenses (up to $2million or 2.5% for costs over $2 million). It can be applied against the Minnesota corporate income tax, individual income tax, or franchise tax.

What Can Be Claimed For R&D Tax Credits?

Your business must have incurred expenses for qualified research and development activities to be eligible for the credit. These expenses can include:

  • Wages paid to employees who are directly engaged in research and development activities
  • Materials and supplies used in research and development activities
    Equipment used in research and development activities
  • Other costs associated with research and development activities, such as contract research expenses

Can Sole Traders Claim R&D Tax Credits?

Yes, sole traders can claim the credit if they are engaged in qualified research and development activities. The credit is applied against the Minnesota individual income tax.

Although the credit is non-refundable, any unused portion of the credit can be carried forward for 15 years. If you don’t use all of the credit in the year it is earned, you can carry it forward and use it in future years.

  • How Do I Know If My Business Is Engaged In Qualified Research And Development Activities?

The Internal Revenue Code defines qualified research and development activities as those undertaken to discover information that is technological and that is intended to be helpful in the development of a new or improved product, process, or software.

 

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