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Iowa R&D Tax Credits

Iowa R&D Tax Credits

 

Find out if you qualify for R&D tax credits in Iowa and recharge your business.

 

The state of Iowa offers a refundable Research Activities Credit so long as the taxpayer meets the requirements of IRC § 41. The Iowa refundable credit is roughly 6.5% of increased research expenses plus 6.5% of basic research expenses conducted in Iowa. There is also an alternative simplified credit (ASC) calculation method worth roughly 4.55% of the expenditures in Iowa over the average of the prior three-year QREs. Additionally, the taxpayer must claim the federal credits on Form 6765 to claim Iowa R&D credits.

Learn more about Iowa's R&D Tax Credit law here.

 

R&D Tax Credit Available:

Yes

 

Eligible Entities:

C-Corporations, S-Corporations, LLCs, Partnerships

 

Deadline for Tax Filing:

Due with the Iowa Tax Return

 

Data Required to Compute Credit:

Claim Period Federal Qualified R&D Expenses (QREs)

 

What Information is needed?

Claim Period IA QREs

IA QREs for Prior 3 Years

 

Credit Carryforward:

None

 

The R&D tax credit equals:

  • Regular Method: 6.5% of the excess of qualified research expenses during the tax year over a computed base amount of expenditures using Iowa's apportioned share of research expenses.
  • Alternative Simplified Method: 4.55% of the difference between the current year Iowa QREs and 50% of the average of the prior three years Iowa QREs.

The Base Amount shall not exceed 50% of the QREs for the credit year.

The law changed in 2018, leading to two modifications, specifically:

  1. a clarification of how the credit is calculated and
  2. limitations on who may claim the credit.

Suppose a business had not yet claimed the credit for tax years prior to 2018 but is eligible under the new limitations. In that case, the company should complete a return and include a copy of the new Iowa Form 128 or Iowa Form 128S. No further action is needed if a business has already claimed the credit for tax year 2017 and is still eligible under the new limitations. There is no need to complete an updated 2017 form.

Suppose a business already filed a credit claim for a prior tax year and is no longer eligible. In that case, the company should file an amended return to add back the amount of the Research Activities Credit claimed. The business should file an amended return by October 31, 2018, to avoid receiving a notice of assessment from the Department. Penalties and interest through October 31, 2018, will be waived for a taxpayer who files an amended 2017 return to add back a Research Activities Credit and files a Penalty Waiver Request. The waiver will only apply to adjustments attributable to the Research Activities Credit.

Specific Items to Note:

Any R&D tax credit above tax liability can be refunded or credited to tax liabilities due in the subsequent year.

Taxpayer must be engaged in one of the following industries:

  • Manufacturing - Activities commonly understood within the term's ordinary meaning include refining, purifying, combining different materials, packing of meats, and activities subsequent to the extractive quarrying or mining process, such as crushing, washing, sizing, or blending of aggregate materials.
  • Life Sciences - The sciences concerned with studying living organisms, including agricultural science, biology, botany, zoology, microbiology, physiology, biochemistry, and related subjects.
  • Software Engineering - The detailed study of software's design, development, operation, and maintenance.
  • Aviation & Aerospace - The design, development, or production of aircraft, rockets, missiles, spacecraft, and other machinery and equipment that operates in aerospace.

The taxpayer cannot be engaged in any of the following industries:

  • Agricultural production or agricultural cooperatives;
  • Contractors, subcontractors, builders, or contractor-retailers engaged in commercial and residential installation/repair;
  • Financial services, collection agencies, real estate, or investment companies;
  • Publishing companies;
  • Retailer transportation companies or wholesalers, or‍
  • Architecture.

 

Ready to calculate your R&D tax credits?

To get an estimate of the potential value of your unclaimed R&D Tax Credits, try out our credit calculator.

 

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