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Form 6765 for Tax Credits and Understanding Research Activities

A deep dive into applying research activities for your business.

Table of Contents

Form 6765 plays a crucial role for businesses as it enables them to receive tax refunds by investing in research and development. This is instrumental as research investments can assist businesses in expanding and innovating.

The Credit for Increasing Research Activities permits businesses to deduct a percentage of their research expenses (including wages, supplies, and external research) from their taxes. Although filling out Form 6765 can be complex, at Crowne Tax We make the process simple and easy to understand. We also provide a streamlined way to apply and obtain the Research & Development Tax credit. 

What is Form 6765?

In Simple terms, Form 6765 is an IRS created form that allows business owners to report and submit Research & development related expenses to the IRS. Once submitted properly and lawfully business owners are able to receive a refund for various research related expenses that went towards their business. This money can be received in the form of money send directly to the business owners bank account. 

R&D(Research and Development) Tax credits have been around in the United States and other countries since the 1980’s and have provided business owners with government approved refunds for developmental expenses.

The primary goal of these tax credits are to incentivize Business owners to invest into research and development type projects.

Form 6765 Is the form that accountant and Tax professionals can submit to the IRS in order to report qualified expenses. 

What is the R&D(Research & Development) Tax Credit?

The R&D Tax Credit is a tax incentive offered by the U.S. government to encourage businesses of all sizes and industries to invest in research and development (R&D) activities. The credit, first introduced in 1981, allows businesses to receive a dollar-for-dollar reduction in their federal tax liability for qualifying R&D expenses. The credit rate varies depending on the business size, but it can range from 6% to 20% of eligible expenses.

In order to qualify for the R&D Tax Credit, businesses must demonstrate that their R&D activities are intended to develop new products or processes, or improve existing ones. Eligible expenses include wages, supplies, and third-party contractor fees for R&D work. The credit is available to both profitable and non-profitable businesses, and can be carried forward for up to 20 years.

Overall, the R&D Tax Credit is a valuable opportunity for businesses to invest in innovation and leverage tax savings to continue developing new ideas and technologies. Crowne Tax & Accounting provides you with a streamlined process for accessing this credit and we can fill and submit your Form 6765 for you. 

Eligible Activities for Claiming R&D Include…

  • Wages
  • Supplies
  • Testing
Along with these, in order for the expense to count it must meet certain qualifications such as being related to an improved or new product, have technological uncertainty, and be part of a trade or business.
 
Accounting for R&D Tax Credit

How to Complete Form 6765

Form 6765 is used to claim the credit for increasing research activities. To properly fill out this form, the taxpayer must first calculate their qualified research expenses (QREs) for the year. QREs include wages, supplies, contract research expenses, and other expenses related to research and development.

Once the QREs have been calculated, the taxpayer must determine their base amount, which is a fixed percentage of their average annual gross receipts from the previous four years. If the QREs exceed the base amount, the taxpayer may be eligible for the research credit.

To claim the credit, the taxpayer must provide detailed information about their research activities, including the nature of the research, the methodology used, and the specific expenses related to each activity. The taxpayer must also provide information about any grants or subsidies received for the research and how those funds were used.

It is important to note that there are certain limitations and restrictions when claiming the research credit. For example, the credit cannot be used to offset self-employment taxes, and it may be subject to certain phase-out rules.

Overall, filling out Form 6765 requires a thorough understanding of the research credit and the taxpayer’s specific research activities and expenses. It is recommended that taxpayers consult with a tax professional to ensure accurate and complete reporting. If you are worried about filling out the form, allow us at Crowne Tax To Fill and submit the form for you. We make the process easy.

Filling out the Form - A Walkthrough

Now, let’s break down how to actually fill out Form 6765. Understanding what the process is is essential to effectively receiving the tax credit the proper way.

If you would rather us fill out the form click the link below and we will help you calculate and fill out the form in a few easy steps. 

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Sections A and B - Regular Credit

There are a few calculation methods that help you to determine the R&D tax credit. In section A you use the usual method of filling out the credit. In section B you will use a more simplified method

You are able to do Fill out section A or Section B. It is not allowed, however, to fill out both sections.  

The Research & Development credit is 20% of your current expenses over a specific base amount. Note, that they are only for qualifying expenses. 

The second way to fill it out for section B, requires you find the difference between the qualifying expenditures amount in the current year and 50% of the average qualifying  expenses over the past 3 years since that is the time that the credit qualifies. Then  you need to multiply the difference by 14%. Once done, this will give you the total research Credit you qualify for. 

The expenses need to qualify under the guidelines established by the government and they are the following. 

  • Salaries
  • Supplies
  • Contract work expenses

In order to claim expenses you will need to show proof that these expenses did indeed exist through various methods. One could include P&L statements or receipts. 

At the end of form 6765 it allows you to take a lesser amount in the Credit.

This option reduces the amount of R&D tax credit you are able to receive but eliminates any unfavorable taxable income adjustments. The benefit of this is that it makes doing your taxes easier and much more simple to figure out. 

Page 1 Form 6765 - Crowne Tax & Accounting
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Section C - Current Year Credit

To fill out Section C of the form, the taxpayer must first determine the total amount of QREs for the year. QREs can include wages and salaries paid to employees directly involved in research activities, supplies used in research, and any costs associated with conducting research. The taxpayer must then divide the total QREs into two categories: basic research and applied research.

Basic research is research that is done to gain a greater understanding of a particular subject, without any specific application in mind. Applied research, on the other hand, is research that is done with a specific goal in mind, such as developing a new product or process. The taxpayer must then report the amount of QREs for each category in the appropriate boxes on the form.

Overall, accurately filling out Section C of Form 6765 requires careful attention to detail, and knowledge of what constitutes qualified research expenses according to the IRS.

Section D - Qualified Small Business Payroll

Section D of the form requires information about the wages, salaries, and other expenses paid by the company for qualified research activities. Here are the steps to fill out Section D:

1. Begin by entering the total amount of wages and salaries paid by the company during the tax year in question. This should include all employees involved in the research process.

2. Next, enter the total amount of any supplies, materials, and other expenses paid by the company for qualified research activities during the tax year.

3. Enter the total amount of contract research expenses paid to third-party contractors or independent researchers for qualified research activities during the tax year.

4. Calculate the sum of all the figures entered so far and enter the total in the final line of Section D.

5. Review the entire form for accuracy and completeness before submitting it to the IRS.

It is important to note that Section D of Form 6765 requires accurate and detailed information about the company’s research activities and expenses. In order to avoid mistakes or omissions, it may be helpful to consult with a tax professional or accountant.

Crowne Tax & Accounting

Let Us Do The Hard Work

At Crowne Tax, we make the process easy. Fill out the form below and we will walk you through the process of Form 6765.
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About Crowne

Crowne Tax & Accounting has a combined 40 years of Tax, Accounting, Payroll, Business Entity, and Investment Banking Experience. We have helped over 15,000 clients to reduce their tax liability, and save our clients hundreds of thousands of dollars. See if we can help you with your Tax needs Today!

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