Kentucky R&D Tax Credit

Research & Development (R&D) is a key component of economic growth. For this reason, the federal government and certain states offer tax incentives to businesses that invest in R&D. In addition, Kentucky has its own tax credit program, and the Kentucky research and development tax credit is a part of it. You might be eligible for its benefits if you conduct R&D activities in this state.

Kentucky Research Tax Credit Explained

This state doesn’t have a particular law that is equivalent to IRC 41. However, the Kentucky Research Tax Credit is a nonrefundable credit equaling 5% of the eligible costs of building research facilities.

Research facilities’ building refers to costs incurred in Kentucky for new facilities, facility upgrades, equipment purchases, or facility expansions to accommodate qualifying research. The term “qualified research” has the same meaning as in IRC Section 41. However, expenses can’t cover sums spent for replacement property (like supplies or raw materials) and must be ascribed to tangible, depreciable property.

You can apply it against income taxes levied by individual income tax (KRS 141.020), corporation income tax (KRS 141.040), or LLET (limited liability entity tax, KRS 141.0401). When using credits, statute KRS 141.0205 specifies an ordering clause.

How to Apply for Kentucky R&D Tax Credit

You must submit the Schedule QR with the income tax return to qualify for the Kentucky tax credit. Moreover, along with the tax return, you should include a schedule of the tangible, depreciable property showing the dates you bought and started using it, its cost, and its description. Each time you claim a credit carryforward on a filed income return, you must also include a copy of Schedule QR.

Taxpayers who partake in the qualifying research tax credit must submit Schedule TCS for pass-through companies and corporations or Schedule ITC for individuals. Furthermore, any return that claims the credit must include the Schedule QR and the Schedule TCS or Schedule ITC. You may carry credit balances forward for ten years.

How to Calculate the Kentucky Research Tax Credit

The credit equals 5% of Kentucky’s “qualified research” facility building, remodeling, expansion, as well as equipment expenses.