The R&D Tax Credit is back! Find out how the Big Beautiful Bill Act can fund your R&D. Learn More
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The California Research and Development Tax Credit provides a valuable opportunity for companies performing qualified research activities within the state. The credit is designed to reduce California income or franchise tax liability and can be claimed in addition to the federal R&D credit.
The credit is calculated as 15% of qualified research expenses (QREs) that exceed a base amount, plus 24% of qualified basic research payments to universities or certain research organizations. California’s definition of QREs generally aligns with the federal rules under IRC §41, but unlike the federal credit, California does not allow expenses for research performed outside the state and excludes certain costs such as computer software developed for internal use.
To claim the California credit, you must file Form FTB 3523, Research Credit, along with your California income or franchise tax return. There is no carryback of unused credits, but unused amounts may be carried forward indefinitely to offset future tax liability, making it a long-term tax planning tool.
📄 California Franchise Tax Board – R&D Credit Overview
📄 Form FTB 3523 + Instructions (PDF)
It’s important to note that California’s credit is nonrefundable and cannot reduce the annual tax below the minimum franchise tax. Companies with large research teams or high in-state payroll costs may see substantial benefits, especially when coordinated with the federal credit. Strategic analysis of QRE allocations between federal and state claims is key to maximizing your total benefit, and our team can help you plan and document your claim to withstand IRS or FTB review.
Starting in tax year 2025, businesses can now immediately deduct domestic R&D expenses in the year they occur instead of spreading deductions over five years. The bill also offers refund opportunities for small businesses and faster deduction schedules for larger companies.
If your business has $31 million or less in annual gross receipts, you may be able to:
File amended returns for 2022–2024 to get cash refunds for previously capitalized R&D costs
Deduct remaining unamortized R&D expenses faster starting in 2025
Apply your R&D credit against payroll taxes—up to $500,000 per year for qualifying startups
Yes. Eligible small businesses can retroactively deduct R&D costs from 2022–2024 and claim refunds. Even larger companies can accelerate the deduction of past R&D costs over one or two years starting in 2025.
No. The 15-year amortization rule for foreign R&D remains in place. The new immediate expensing option only applies to U.S.-based research and development.
Savings vary, but many businesses may recover hundreds of thousands of dollars through a combination of:
Full expensing of domestic R&D costs
Retroactive refunds for 2022–2024
Annual R&D tax credits (often worth 5–10% of qualifying expenses)
Startups with less than $5 million in annual revenue can use the R&D credit to offset payroll taxes—up to $500,000 per year—resulting in quarterly cash refunds, even without taxable income.
Work with our expert team at TaxTaker. We help innovative companies like yours identify, document, and claim the maximum R&D tax credit available—while ensuring you stay fully compliant with IRS requirements. Our team specializes in both federal and state R&D tax credits, and we know how to uncover hidden value by reviewing past filings for potential refund opportunities. With the new 2025 rules in place, we’ll build a tailored strategy that maximizes your savings now and in the years ahead. That’s why businesses across the country trust TaxTaker to deliver results they can count on.
Working with TaxTaker is risk free. TaxTaker collects a success fee only if you qualify for a tax credit.
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