Question

Problem 12-24 (b) (LO. 3, 7)

Ivan, a calendar year taxpayer, informs you that during the year he incurs expenditures of $158,000 that qualify for the incremental research activities credit. In addition, Ivan’s research-credit base amount for the year is $93,000.

a. Determine Ivan's incremental research activities credit for the year.
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In general, research expenditures qualify if the research relates to discovering technological information that is intended for use in the development of a new or improved business component of the taxpayer. Such expenses qualify fully if the research is performed in-house (by the taxpayer or employees). If the research is conducted by persons outside the taxpayer's business (under contract), only a percent of the amount paid qualifies for the credit.

b. Ivan is in the 24% tax bracket. Determine which approach to the research expenditures and the research activities credit (other than capitalization and subsequent amortization) would provide the greater tax benefit.

Total tax benefit of Choice 1 - Reduce the deduction by 100% of the credit and claim the full credit:
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Total tax benefit of Choice 2 - Claim the full deduction, and reduce the credit by the product of 100% of the credit times 21%:
$fill in the blank 5b0112042fd7063_2
Therefore, Ivan should select Choice 2

Answer 1