How to use Turbotax for R&D Tax credits

[kevinbaker2275]

My sole proprietorship (single member LLC) is an  R&D stage (early state) biotechnology company, with losses each year and no revenue. In other words, 100% of the company's effort and expenses are on cutting edge R&D. So far, I have not see any place in the TurboTax tax return to enter this information.  Just as an FYI, I am using Turbotax for the first time? Can anyone help direct me to the right location to enter this information? Thank you!

[DianeC958]

The place to enter information for a single member LLC is the Federal Section, Wages & Income, Self-Employment.

As you answer the questions when it comes to expensing Research and Development you will need to create your own category.

Below is more information from IRS Publication 535.  If this is your first year and you want to expense your costs do not forget to make the election to deduct Research and Development costs as a current business expense.

Include a statement with your return that you are electing to deduct Research and Experimental Costs as expenses according to 26 U.S. Code § 174.Research and experimental expenditures

Research and Experimental Costs

The costs of research and experimentation are generally capital expenses. However, you can elect to deduct these costs as a current business expense. Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change.

If you meet certain requirements, you may elect to defer and amortize research and experimental costs. For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8.

Research and experimental costs defined.

Research and experimental costs are reasonable costs you incur in your trade or business for activities intended to provide information that would eliminate uncertainty about the development or improvement of a product. Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product. Whether costs qualify as research and experimental costs depends on the nature of the activity to which the costs relate rather than on the nature of the product or improvement being developed or the level of technological advancement.

The costs of obtaining a patent, including attorneys' fees paid or incurred in making and perfecting a patent application, are research and experimental costs. However, costs paid or incurred to obtain another's patent are not research and experimental costs.

From IRS Publication 535

[kevinbaker2275]

Hi, Diane, many thanks for your response. Are there any significant benefits to take the election to deduct R&D costs as a current business expense.  I have three questions: (i) If you make this election, can you change your mind in the following year and "unelect" to deduct R&D costs as a current business expense?; (ii) If you did not apply for qualified R&D tax credits in past filings (previous years), can you apply for them later?; and (3) Can you use R&D tax credits to offset AMT? Thanks again!

[ColeenD3]

To answer your questions:

(i) Yes, if you get IRS approval.

The costs of research and experimentation are generally capital expenses. However, you can elect to deduct these costs as a current business expense. Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change.

(ii) Each tax year is separate. You must include your expenses in the year your incur them.

(iii) You may be subject to AMT if you deduct certain research and experimental, intangible drilling, exploration, development, circulation, or business organizational costs. For more information on the AMT, see the Instructions for Form 6251, Alternative Minimum Tax—Individuals.

PUB 535

[Shirley920]

I have an S corp and prepare my company's 2019 tax return using Turbotax Business. I tried to claim the federal research credit using Form 6765. Does anyone know how to claim this credit using Turbotax Business?

[jmsklee]

If you are using a home office to do R&D and are incurring costs, but had no income for the year, can you still deduct the rent cost of the home office portion as an R&D cost?  Turbotax seems to imply that revenue is needed to qualify for deducting the home office portion of rent.  Is this true?

[KristinaK]

Home office deduction does not qualify for the R&D credit. However, if you have a business (reporting Schedule C), you may be able to deduct a Home Office Deduction against your business income. However, it does require net income in order to be counted. If it is not used in the current tax year, it can be carried forward (TurboTax does it for you as long as you use it next year) to the next year. 

[KPP1]

Where can I find in step by step the R&D form to fill out.  We're C-Corp.   Thanks in advance. 

[KristinaK]

It's best to do it in the Forms Mode. Look for Form 6765 first. The information from that form will flow to Form 3800. So make sure that you check it for correctness as well. 

Remember to reduce your expenses on Form 1120 by the amount of credit you are receiving. 

Also remember to attach a statement to your return stating: "Qualified applicable research and development expenses were reduced by Research tax credit amount of $$$ calculated on Form 6765, Part B. The reduction appears on line XX of Form 1120."

[vusters]

Regarding the "remember to reduce your expenses on Form 1120 by the amount of credit you are receiving.".. If I'm a Sole Proprietor, do I do this on Schedule C?

Specifically do I simply reduce the Contract Labor amount (Schedule C Part II, line 11) by the Research Credit amount if I paid this contractor for the research? And attaching a statement stating as such?

Thank you

[JeffreyR77]

No, that is not the correct way. 

You should complete Form 6765, either Section A or Section B & C. 

Form 6765 is not supported by TurboTax, however, Form 3800 is. 

Form 6765 Section C reports the nonrefundable credit on Form 3800, Part III, line 1c. 

You can calculate your credit outside of TurboTax and then type Form 3800 in the search box in the top right and click on the Jump to link.  You will then be able to enter your credit in TurboTax Home and Business. 

You will need to print and mail your tax return attaching Form 6765 to the tax return.

Form 6765 Credit for Increasing Research Activities  

Instructions for Form 6765 Credit for Increasing Research Activities

[ryansarn]

I am no expert, instead a first time Turbo tax user who is a former tax preparer

The information below was provided by chat with technical support

I was told I could e file the federal return.

Then print only 3800 from Turbo tax

Print and fill out 6765 from the IRS website 

and stick the two forms in an envelope.

This is way easier than printing the whole 100 page return!

I asked more than once to confirm.

I haven't done it yet.

Wish me luck!

[changbel]

Hi, Kristina K:

Thanks for your answer posted on July 15, 2020.  I just saw it and would like to clarify a bit if you don't mind.  

1) If I report a Payroll Credit in 2021 on Form 6765 and flow to Form 3800, do I need to reduce my labor expenses on Form 1120 in 2021 for the same amount I'm claiming (not received yet)?  If yes, do I need to reduce the same amount of labor expenses on Sch. C as well (I'm filing 1040 LLC with Sch. C) ?   Why have to do at two places?  

2) On what line of Form 1120, shall I fill out the labor expenses that I plan to claim the credit on Form 6765?

3) I'm using Turbo Home Deluxe edition that doesn't support Form 1120 and 6765.  What am I going to do?  Print them all out and mail in?

Please advise and thank you so much!

Belle 

[AliciaP1]

Form 1120 is the annual tax return for a C-Corp (no relation to an LLC filing on Schedule C) and this thread is for Research and Development activities specifically.

Can you clarify what payroll credits you are talking about taking so we can best help you out?

@changbel

[changbel]

HI, Ryansarn:

I'm in the same boat as you're.  Last year, I mailed a whole set of returns because I couldn't e-file Form 6765.  This year (2021), we are going to try your way (e-mail the core part and mail Form 6765 and 3800 plus 1120 if necessary).  I wonder, if your way worked last year?  Could IRS match your e-filled documents with your mailed in documents easily without any questions?  Please advise.  Thanks!

BC