r&d tax credits north carolina

R&D Tax Credits

North Carolina

The R&D tax credit can help a wide variety of businesses offset and reduce their income tax liability, in addition to providing many other benefits.

North Carolina had previously offered a credit for research and development expenses, but effective January 1, 2016, this credit has been repealed. Prior to this date, eligible businesses could claim a percentage of their expenses as a credit, depending on certain factors. Small businesses were eligible for a credit of 3.25%, and research performed in a development Tier 1 area could also receive a credit of 3.25%. For North Carolina research universities, the credit was more significant, at 20%. Businesses operating in an eco-industrial park could receive a substantial credit of 35%. However, with the repeal of this credit, businesses will need to seek other means of financing their research and development efforts.

North Carolina has been a hub for innovative companies, and while businesses located in the state may still be eligible for the Federal Research and Development (R&D) Tax Credit, the state no longer offers this incentive.To claim this credit, businesses must file Form NC-478I and meet certain criteria, such as conducting technological research that eliminates uncertainty through experimentation. Although this credit is non-refundable and non-transferable, unused credits may be carried forward for up to 15 years, allowing businesses to maximise the benefits of their research and development efforts over time.

To encourage innovation and growth in North Carolina, businesses may be eligible for the Research and Development Tax Credit. While the state-level R&D Tax Credit may no longer be available, businesses in North Carolina can still leverage other resources and incentives to drive innovation and growth. This credit is applicable to entities such as S Corporations, partnerships, trusts, and estates, which can claim the credit against their income tax. As of January 1, 2016, the state R&D Tax Credit is no longer valid, which may impact businesses that were relying on this credit to support their research and development activities.

If businesses qualify for the tax credit, they may receive a credit on qualifying expenses, including employee wages, supplies, testing expenses, and certain patent development costs.

R&D Tax Credits in North Carolina

Research and Development Tax Credit is a valuable incentive for businesses in North Carolina seeking to innovate and create new products and processes. North Carolina no longer offers the Research and Development (R&D) Tax Credit at the state level, companies located in the state may still be eligible for the Federal R&D Tax Credit. Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows credit of eligible spending for qualified research, including remuneration for U.S. workforce, supply consumption charges, prototype testing, outsourced research expenditures and certain costs associated with developing a patent. To qualify, the research must be technically advanced, a feature of the taxpayer’s operations, represent innovative R&D, and clarify uncertainty through experimentation.This credit serves as a powerful tool for businesses to drive progress and stay competitive in a rapidly changing economy.

r&d tax credits north carolina

What Goes into the North Carolina R&D Tax Credit as a Qualified Research Expense?

The North Carolina research and development tax credit allows for businesses to claim a percentage of their qualifying research expenses.

In order for an expense to qualify it must meet specific research criteria:

  1. Products, services, processes, or software must be new or improved in some way 
  2. Uncertainty must be eliminated as a result of the research 
  3. The research must be technological 
  4. Research must include experimentation processes of some nature

The types of expenses that are applicable to claim under the credit include the following:

Wages paid to employees who are directly involved in the performance of research and development activities within the state of North Carolina. This includes payments made to subcontractors involved in the performance of such activities.

Take Advantage of the
R&D Tax Credit with Source Advisors

Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and also determine any state R&D tax credit availability. Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.