Louisiana R&D tax credit: How your business can benefit

If your business conducts research and development activities in Louisiana, you may be eligible for the state’s R&D tax credit. This can help reduce your state tax liability and improve cash flow.

In this article, we’ll explain what exactly the R&D tax credit is, who is eligible for it, and what you need to do to claim it. So let’s jump straight in.

What is the Louisiana R&D tax credit?

The Louisiana R&D tax credit is a state incentive designed to encourage businesses to invest in research and development activities within the state. It allows eligible businesses to claim a credit based on their qualified research expenses (QREs) incurred in Louisiana.

The credit is calculated as follows:

• 30% of QREs for businesses with 50 or fewer employees.

• 10% of QREs for businesses with more than 50 employees, but with R&D expenditures less than their prior three-year average.

• 5% of QREs for businesses with more than 50 employees, with R&D expenditures exceeding their prior three-year average.

What’s the difference between the Louisiana R&D tax credit and the federal R&D tax credit?

The main difference is that the federal credit applies to research conducted anywhere in the US, while the Louisiana credit is limited to expenses incurred within the state.

Other key differences include:

• Credit rate. Louisiana offers up to 30% for small businesses, while the federal credit rate can be up to 20% (regular method) or 14% (alternative simplified method).

• Payroll tax offset. Unlike the federal credit, Louisiana does not allow small businesses to offset payroll taxes.

• Carryforward period. Louisiana allows unused credits to be carried forward for up to 10 years, while the federal credit has a 20-year carryforward limit.

What are the benefits of the Louisiana R&D tax credit?

Claiming the Louisiana R&D tax credit offers your business several advantages, including:

• Reduced tax liability. The credit directly offsets your company’s corporate excise tax in Louisiana, helping to lower your overall tax burden.

• Carryforward period. If the credit cannot be fully used in the current tax year, it can be carried forward for up to 10 years.

• Support for innovation. The credit can help your businesses reinvest in research and development, leading to new products, technologies, and market expansion.

• Improved cash flow. Tax savings free up funds that can be used for growth, hiring, or additional R&D efforts.

If your business is engaged in a research-driven industry — such as technology, software, or manufacturing — the credit provides a tangible financial benefit that rewards innovation.

Who is eligible for the Louisiana R&D tax credit?

To qualify, your company must:

• Engage in activities that meet the IRS Section 41 definition of qualified research.

• Conduct research within Louisiana.

• Perform research that is technological in nature and aims to develop new or improved products, processes, or software.

• Use a process of experimentation to resolve technological uncertainties.

• Incur qualified research expenses (QREs), including wages paid to R&D employees, supplies used in the research process, and contract research expenses.

How do you apply for the Louisiana R&D tax credit?

To apply for the Louisiana R&D tax credit, your business must follow these steps:

1. Identify your qualified research activities (QRAs)

First, review your internal projects and expenses to ensure they meet the eligibility criteria listed above.

2. Calculate the credit amount

As mentioned, the Louisiana R&D tax credit is calculated based on the number of employees and changes in research expenditures, as follows:

For business with 50 or fewer employees

If you have 50 or fewer employees, the credit is 30% of your total current-year QREs.

For instance, if your company spent $1.5 million on QREs in Louisiana during the tax year, the credit calculation is simply:

$1.5m x 30% = $450,000

For businesses with more than 50 employees

For businesses with more than 50 employees, the calculation depends on whether your R&D expenditures have increased or decreased relative to the previous three years.

If your current-year QREs are lower than the prior three-year average, you can claim 10% of your total QREs.

For example, let’s say:

• Your business has more than 50 employees

• Your current-year QREs are $2 million

• Your average QREs over the past three years are $2.5 million

Since your current-year QREs are lower than the average, you qualify for the 10% rate. As a result, the credit calculation would be:

$2m x 10% = $200k

However, if your current-year QREs exceed the prior three-year average, you can only claim 5% of your total QREs.

For example, let’s say:

• Your current-year QREs are $3 million

• Your average QREs over the past three years are $2.5 million

Since your current-year QREs exceed the average, you only qualify for the 5% rate, and your credit would be:

$3m x 5% = $150k

3. File Form R-620

Include Louisiana Form R-620 (Research and Development Tax Credit Claim Form) with your Louisiana corporate or personal income tax return (depending on your business structure).

4. Apply any unused credits

If the income tax liability is insufficient, your business can carry forward your unused credits for up to 10 years.

5. Maintain proper documentation

Ensure that you keep detailed records of your R&D activities, expenses, and employee roles in case of an audit. Specifically, you should aim to:

• Maintain organized records. Keep thorough documentation of your projects, expenses, employee activities, and research methodologies.

• Track R&D expenses separately. If possible, maintain a separate ledger for R&D costs, making it easier to verify during an audit.

• Use time-tracking systems. If wages are part of your claim, ensure employees log the time spent on R&D projects.

• Retain supporting documents. To help validate your claim, keep supporting records such as contracts, invoices, prototypes, test results, and meeting notes.

Can you claim the federal R&D tax credit and the Louisiana R&D tax credit together?

Yes, your business can claim both the federal and Louisiana R&D tax credits. However, you must ensure that expenses claimed at the federal level are adjusted accordingly when calculating the state credit.

To learn more about claiming the federal R&D tax credit, check out our in-depth guide below:

Tax and Compliance —

6 min

How to claim the R&D tax credit in the US

The research and development (R&D) tax credit is a highly useful relief for many US businesses. Learn how to claim it in our in-depth guide.

Is the Louisiana R&D tax credit worth it?

If your business engages in any kind of innovative research, the Louisiana R&D tax credit can potentially provide a major financial advantage. However, to make the process efficient and simple, you need to keep full track of the compensation you’re paying to the employees who are contributing to your QRAs.

As a fully automated payroll system, Remote Payroll can provide you with this information quickly and accurately, making it more simple to calculate your eligible costs. Our system also enables your people to track their hours, improving the accuracy and validity of your claims.

To learn more about how we can help — and how we can simplify your entire payroll management system — speak to one of our friendly experts today.

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