Texas R&D Tax Credit Explained for Businesses

Texas and the R&D Tax Credit

State Credit Name: Texas Research and Development Tax Credit

Expiration Date: December 31, 2026

Who Can Apply? Corporations and flow-through entities

Credit Carry Forward: Unused Texass R&D credit can be carried forward 20 years.

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Special Notes: Starting with tax returns filed after January 1, 2014, Texas taxpayers can claim the Texas R&D state credit to offset a portion of their franchise tax or use it towards sales and use tax exemption on the purchase or lease of depreciable, tangible property used in qualified research in Texas. Our experts can assist you with everything from Austin federal credit to Houston, Dallas and everywhere between in the Lone Star State. The credit rates for the Franchise Tax Credit are the following in the state of Texas:

2.5% for companies who have less than 3 years of QRE’s and did not work through a university.
3.125% for companies who have less than 3 years of QRE’s, but did work through a university.
5% for companies who have 3 years of QRE’s, but did not work through a university.
6.125% for companies who have 3 years of QRE’s and did work through a university.

The allowable Franchise Tax Credit in any one period, including carry forward amounts, cannot surpass 50% of the franchise tax liability for that period.

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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 has four offices in Texas: Fort Worth (1120 South Freeway, Fort Worth), Austin (108 Wild Basin Rd South, Austin), Dallas (2101 Cedar Springs, Dallas) and Houston (2800 Post Oak Boulevard, Houston). These four office locations provide R&D tax credit consulting and advisory services to: Houston, San Antonio, Dallas, Austin, Fort Worth, El Paso, Arlington, Corpus Christi, Plano, Laredo, Lubbock, Garland, Irving, Amarillo, Grand Prairie, Brownsville, McKinney, Frisco, Pasadena and Mesquite.

If you have any questions or need further assistance, please call or email our local Texas Partner on (817) 769-8168.
Feel free to book a quick teleconference with one of our Texas 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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Texas R&D Tax Credit Filing Instructions

To claim the Research and Development (R&D) tax credit in Texas, businesses generally have two options: a sales and use tax exemption on depreciable tangible personal property used in qualified research, or a franchise tax credit based on qualified research expenses. To claim the franchise tax credit, which is often the primary R&D tax benefit for many businesses, a taxable entity must file their Long Form Franchise Tax Report (Forms 05-158-A and 05-158-B). Alongside this, they must include two crucial schedules: the Credits Summary Schedule (Form 05-160) and the Research and Development Activities Credits Schedule (Form 05-178). Businesses must also ensure they meet the specific eligibility criteria for qualified research expenses and activities as defined by the Texas Tax Code, which often align with federal IRC Section 41 guidelines, and maintain thorough documentation of all R&D expenditures. The credit can be carried forward for up to 20 years and is generally 5% of the amount by which current year qualified research expenses exceed a base amount (50% of the average QREs from the three preceding tax years). If contracting with higher education institutions, a higher credit rate may apply.

R&D Tax Credit Training for TX CPAs

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R&D Tax Credit Training for TX CFPs

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Texas Patent of the Year – 2024/2025

Ice Thermal Harvesting LLC has been awarded the 2024/2025 Patent of the Year for their innovative approach to energy generation. Their invention, detailed in U.S. Patent No. 12110878, titled ‘Systems and methods for generation of electrical power at a drilling rig’, introduces a novel method to harness waste heat from drilling operations to produce electricity.

ICE Thermal Harvesting’s patented system captures excess heat from drilling fluid, engine exhaust, and cooling systems. This heat is transferred to a working fluid via heat exchangers, which then drives an Organic Rankine Cycle (ORC) unit to generate electrical power. This process allows drilling operations to convert waste heat into usable electricity, reducing reliance on external power sources and enhancing energy efficiency.

The real-world impact of this technology is significant. By utilizing waste heat, drilling rigs can operate more sustainably, lowering operational costs and minimizing environmental impact. This innovation aligns with the industry’s push towards greener energy solutions and offers a practical application of renewable energy principles in the oil and gas sector.

Ice Thermal Harvesting’s advancement represents a step forward in integrating sustainable practices into traditional energy extraction methods, showcasing how innovation can drive efficiency and environmental responsibility in the energy industry.