1. Does Nevada offer a state-based R&D tax credit?

No, Nevada does not have a state-level R&D tax credit. Businesses operating in Nevada cannot claim a credit against state taxes for their research and development activities.

2. If there’s no state credit, can businesses in Nevada still get an R&D tax credit?

Yes. Companies in Nevada can still qualify for the federal R&D tax credit, which is a powerful incentive to offset federal tax liability.

3. What is the federal R&D tax credit?

The federal R&D tax credit is a tax incentive from the U.S. government that rewards businesses for increasing their investments in research and development activities. The credit provides a dollar-for-dollar reduction of federal tax liability.

4. What types of activities qualify for the federal R&D tax credit?

To qualify, an activity must meet the “four-part test” established by the IRS. The activity must be:

• Technological in Nature: It must rely on principles of physical or biological science, engineering, or computer science.
• Elimination of Uncertainty: It must aim to eliminate technical uncertainty about the capability, method, or design of a product or process.
• Process of Experimentation: It must involve a systematic process of trial and error, modeling, or testing to achieve a result.
• Permitted Purpose: The purpose must be to create a new or improved function, performance, reliability, or quality for a business component.

5. What types of businesses in Nevada are likely to qualify for the federal R&D tax credit?

Many industries, including those prominent in Nevada, can qualify. Examples include:

• Manufacturing
• Software and Technology
• Engineering and Architecture
• Construction
• Food and Beverage
• Life sciences and biotechnology

6. What expenses can be included in the calculation of the federal R&D tax credit?

Qualified Research Expenses (QREs) generally fall into three categories:

• Wages: The portion of an employee’s wages for those directly performing, supervising, or supporting qualified research.
• Supplies: Costs for materials and supplies used in the research process.
• Contract research: 65% of amounts paid to third-party contractors to perform research on the company’s behalf within the United States.

7. How is the federal R&D tax credit claimed?

To claim the federal R&D tax credit, businesses must complete and file IRS Form 6765, “Credit for Increasing Research Activities,” with their annual federal tax return. Detailed documentation of the qualifying activities and expenses is crucial.

8. Can a startup in Nevada use the federal R&D tax credit?

Yes. The Protecting Americans from Tax Hikes (PATH) Act of 2015 allows certain small businesses (those with less than $5 million in gross receipts for the current year and no gross receipts for any of the five preceding tax years) to apply a portion of their R&D credit against their payroll taxes, up to $250,000 annually.

9. How far back can a company in Nevada claim the federal R&D tax credit?

A business can typically amend its tax returns to claim the federal R&D tax credit for any open tax years, which is usually the last three years.

10. What kind of documentation is needed to support a federal R&D tax credit claim?

Robust documentation is essential in case of an IRS audit. It should include:

• Project records and technical documentation
• Employee time tracking and job descriptions
• Financial records linking expenses to research projects
• Reports and meeting minutes that show the process of experimentation and elimination of uncertainty.