The world is changing at a fast-paced rate. What used to be typical cities have morphed into smart cities. Over the past four years, state and R&D taxes in California have undergone unprecedented changes.

Changes in state taxes and R&D taxes inform various life aspects. They drive economic growth, influence wages, and affect the quality of life. What is more, the R&D incentive tax program helps companies reduce their tax liabilities and focus better on their business developments.

Understanding the R&D and States Taxes in California

Do you live in California or on the West Coast? You can agree that California has among the world’s globe most innovative economies. Through the R&D tax program, taxpayers stay tax compliant as they engage in R&D activities.

Whether you operate in healthcare, technology, manufacturing, engineering, or any other industry, your business is eligible for R&D tax credits. Today, the good news is that startups can claim R&D tax credits to offset their payroll taxes and improve their bottom line.

Thanks to the R&D incentive, California-based companies reduce their tax liabilities effortlessly. This helps them focus on other key business areas.

The Four-Year Lookback of State Taxes and R&D Taxes in California

California’s high rate of economic growth fosters organizational growth. Companies are becoming increasingly productive and efficient. Looking back four years ago, most Californians focused on the 2017 tax season. Largely, this increased focus was due to the Jobs and Cuts Act-informed tax system.

Most Californians started seeing changes in their paychecks earlier in 2018. According to the Tax Policy Center, “About 65 percent of households paid less in individual income taxes in 2018 as a result of the TCJA. About 6 percent paid more.”

California’s state income taxes are now rate-based, ranging from 1% to 12.3%. Additionally, the Golden State Tax assesses a 1% surcharge on taxable incomes of one million dollars and above.

In California, the state collects county, local, and combined state sales taxes at a rate of 7.5%. This rate comprises two portions. The first portion of 6.5% is the state option and the localities collect the remaining 1%.

The Intent of the R&D Tax Credit and its 4-Year-Long Transition

Unlike other tax programs, the R&D initiative has been quickly adopted to encourage more state activities. This is because the program creates numerous opportunities. For instance, it offers job opportunities associated with research and development activities.

Since its inception, the R&D tax credit has expanded drastically. The most significant change in the past four years is the credit rate. Since adoption, the R&D tax and credit rates were 8% and 12%, respectively. And the qualified research credit rate has increased from 12% to 15% from 2017 to date.

The 2017-2021 California State and R&D Tax Changes

For the past 4-years, there have emerged seven tax brackets on ordinary incomes. There is 10%,12%,24%,32% ,35% and 37% respectively. This means that as you move up your pay scale, your tax scale also increases.

Better yet, your tax bracket is equivalent to your taxable income and filing status. The filing status can be single, married filing separately or jointly, head of household, or qualifying widow or widower. Significantly, state taxes and R&D taxes have extended filing deadlines due to the Covid-19 Pandemic.

How to Benefit from Tax Credits like R&D

The above changes for the past 4 years have helped businesses thrive. The question is, how do you know whether your business qualifies for R&D tax credits like R&D? Well, don’t fret. At Incentax, we’re dedicated to helping your business benefit from tax credits. Our tax experts will take you through a meticulous process to identify and maximize all state and federal tax credits for your business.

Contact us and we’ll do the heavy lifting for you.