Virginia R&D Tax Credits

No, Virginia's state R&D tax credits expired for taxable years beginning on or after January 1, 2025, without extension via HB1969 or other legislation. Businesses should focus on the federal R&D credit under IRC §41, which applies to Virginia operations. Credits earned in prior years remain available under carryforward rules.

The federal R&D tax credit provides up to 20% of qualified research expenses (QREs) exceeding a base amount under the regular method, or 14% of the excess over 50% of the prior three-year average QREs via the Alternative Simplified Credit (ASC).

Federal QREs include wages for employees performing, supervising, or supporting qualified research; supplies used in the research process; 65% of contract research payments; and costs for computer rentals used in qualified activities, all tied to technological uncertainty and experimentation under IRC §41.

Under the regular method, compute the base as the fixed-base percentage times average gross receipts over the prior four years (minimum 50% of current QREs), then apply 20% to the excess. For example, with $1M QREs and $600K base, the credit is 20% × $400K = $80K. Use Form 6765 for filing.

Yes. Early-stage companies can claim the federal R&D credit and often use the Alternative Simplified Credit for easier calculations (14% of QREs above 50% of the three-year average, or 6% of current QREs if no prior QREs). In addition, qualified small businesses can elect to apply up to $500,000 of R&D credit per year against employer payroll taxes, so even pre-profit Virginia startups can benefit.

Federal R&D credits can be carried forward for up to 20 years or back one year, providing long-term value for Virginia businesses with fluctuating tax liabilities, especially in high-innovation sectors like biotech or aerospace.

Keep detailed project and expense documentation for at least the full statute of limitations period and while any R&D credits remain in carryforward. As a baseline, IRS guidance suggests keeping income tax records at least 3 years and employment tax records at least 4 years, with longer periods recommended in some cases. Strike Tax helps organize compliant records for Virginia filers.

Yes, expenses outside Nevada can qualify for the federal R&D credit if they meet IRC §41 criteria, as long as the research is performed in the United States or its territories. Activities conducted outside the United States and its possessions do not generate federal R&D credits.

The federal R&D credit reduces your federal income tax liability. Because Virginia starts from federal taxable income, the required section 280C adjustment and section 174 treatment of R&D costs can indirectly affect your Virginia tax base. The net effect is usually that federal R&D credits improve after-tax cash flow while Virginia still taxes income at its 6% rate.

Visit IRS.gov for IRC §41 guidance, or use Strike Tax's free calculator to estimate eligibility. For Virginia-specific interactions, consult the Virginia Department of Taxation on complementary incentives.

The general statute of limitations for Virginia corporate income tax returns is 3 years from the later of the due date or filing date, with extensions for substantial underreporting (up to 6 years). Credits earned pre-2025 can be carried forward (up to 10 years for the non-refundable Major credit; the refundable standard credit does not carry forward as it is paid out upon claim) and claimed on timely returns within this period or as long as the carryforward allows.