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A small number of tax credits remain for investments that are not necessarily targeted towards the disadvantaged or the environment. In some cases, investments that take advantage of one of these credits can become, in effect, a tax shelter for cash-rich small businesses. In other cases, certain investments to improve the employee benefits offered by your business are rewarded with a tax credit, in addition to the increased ability to attract and retain your employees. Consult your tax adviser for more details.
Research and Experimentation (R&E) Credit
The research and experimentation (R&E) credit encourages businesses to increase the amounts they spend on scientific research. The credit applies to qualified research expenses paid or incurred before December 31, 2011.
The credit generally equals 20 percent of the amount by which your research expenses for the year are higher than your "base amount," which is a figure based on the percentage of gross receipts you spent on research for 1984 through 1988. New companies' base amounts are set by a formula in the law.
To qualify for the credit, the research must be done for an existing business, and must be technological in nature (not research in the social sciences, arts, or humanities). It must relate to a new or improved function, performance, reliability, or quality. Qualified expenses includes in-house research, 65 percent of research costs of a person other than an employee of the taxpayer, and 75 percent of the costs paid to a qualified scientific research consortium.
The rates used to calculate the three tiers of the alternative incremental credit are increased, for tax years ending after December 31, 2006, to:
The R&E credit is claimed on Form 6765, Credit for Increasing Research Activities,.
This tax credit is designed to encourage the rehabilitation of older real estate or certified historic buildings. It allows you to take a tax credit for the expenses you have for renovating, restoring, or rehabilitating (but not enlarging or adding new construction to) certain structures. The percentage of expenses you can take as a credit is 10 percent for buildings originally placed in service before 1936, and 20 percent for buildings listed in the National Register of Historic Places. The 10 percent amount is increased to 13 percent and the 20 percent amount for certified historic structures is increased to 26 percent.
If a project involves both rehabilitation and enlargement, only the costs of rehabilitation are eligible for the credit.
If you claim this credit, you must reduce the depreciable tax basis of the property by the amount of the credit.
The rehabilitation credit is part of the investment tax credit, and can be recaptured (paid back to the IRS) if the qualifying property is sold or disposed of within five years of the time it's placed in service. The credit is claimed on Form 3468, Investment Tax Credit.
Retirement Plan Start-Up Credit
In order to stimulate greater retirement saving, small employers who establish new retirement plans are now entitled to a tax credit for doing so. The credit is only available to employers with 100 employees or less who have not maintained a qualified retirement plan during the three-year period immediately before the first effective year of the new plan. This credit is set to expire for tax years beginning after 2012.
The credit amounts to 50 percent of the costs incurred in creating or maintaining a new qualified plan, up to a maximum of $500 in each of the first three years the plan is effective. Essentially, this means that you have to spend at least $1,000 per year to get the full credit. Any set-up and administration costs not offset by the tax credit (i.e. those above $1,000 in the first three years and those incurred after the first three years) are deductible as ordinary and necessary business expenses.
Employer-Provided Child Care Credit
For tax years beginning before 2012, small, as well as middle-sized, businesses will be eligible for a tax credit of 25 percent of the qualified child care expenses they provide and 10 percent of the cost of qualified child care resource and referral services they offer. The employer-provided credit is capped at $150,000 per tax year.
Expenses eligible for the credit include payments under a contract with a qualified child care facility to provide child care services to the business's employees. Qualified childcare expenses also include the amounts paid or incurred by the employer to acquire, construct, establish, and operate a qualified child care facility for employees. The facility itself must meet any state and local government laws and regulations, like licensing requirements, that may apply for its location.