Minnesota R&D Tax Credit and Its Benefits to Companies

Minnesota and the R&D Tax Credit

The Minnesota R&D credit is generated from qualified research activities (QRAs) performed within the state. Qualifying activities are defined in Section 41 of the Internal Revenue Code as “a new or improved function, performance, or reliability or quality.”

State Credit Name: Credit for Increasing Research Activities

Expiration Date: Indefinite

Who Can Apply? Corporations and flow-through entities

Credit Carry Forward: Credit can be carried forward for 15 years.

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Special Notes: The Minnesota state research credit adopts the federal definition of QRE’s. The credit is 10% of the QRE’s up to $2 million, and 2.5% for expenses above $2 million. QRE’s must have taken place in Minnesota. For partnerships and S-corporations, the credit was refundable from 2010 – 2012. C-Corporations can continue to carry forward credits acquired before 2010 and after 2012. For tax years after 2012, C-Corporations can apply the credit to any member of a corporation business that is included in the combined return.

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Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed’s office location at 14870 Granada Avenue, Apple Valley, Minnesota provides R&D tax credit consulting and advisory services to Minneapolis, Saint Paul, Rochester, Duluth, Bloomington, Brooklyn Park, Plymouth, Maple Grove, Woodbury and St. Cloud.

If you have any questions or need further assistance, please call or email our local Minnesota Partner on (952) 236-4344.
Feel free to book a quick teleconference with one of our Minnesota R&D tax credit specialists at a time that is convenient for you. Click here for more information about R&D tax credit management and implementation.

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Minnesota R&D Tax Credit Filing Instructions

To claim the Research and Development (R&D) tax credit in Minnesota, businesses must first identify their qualified research expenses (QREs) that align with federal R&D credit definitions, but are specifically for research conducted within Minnesota. The credit is nonrefundable and is equal to 10% of the first $2 million of Minnesota QREs exceeding a base amount, and 4% on any such excess expenses over $2 million. The primary form that needs to be filed to make the state R&D tax credit claim is Schedule RD, Credit for Increasing Research Activities. This schedule is completed by the corporation or pass-through entity (partnership or S corporation) that incurred the qualified expenses. If the credit is passed through from a partnership or S corporation, individual partners or shareholders will receive their share of the credit on Schedule KPI (Partner’s Share of Income, Credits and Modifications) or Schedule KS (Shareholder’s Share of Income, Credits and Modifications), respectively. They then report this credit on Schedule M1C, Other Nonrefundable Credits, when filing their Minnesota individual income tax return (Form M1). The credit can be carried forward for up to 15 years if it cannot be fully utilized in the current tax year.