The orphan drug tax credit is a credit that allows 50% of qualified clinical testing related costs (wages, supplies, and contractors) to offset income tax. The R&D tax credit may be taken in conjunction with the orphan drug tax credit, but qualified expenses must be segregated between orphan drug and non-orphan drug tax credit eligible activities. In other words, eligible costs must not be used for both credits – however, these costs must be combined for the R&D tax credit base computation purposes.
Example of Qualified Activities
Biotech Manufacturing Case Study
|Item||Average Annual Amount|
|Qualified Research Expenses (QREs)||$2,500,000|
|Net Federal Credits||$152,000|
|Net State Credits||$136,000|
|Total Net Federal and State Credits||$288,000|
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Biotechnology, pharmaceutical, and medical device companies are prime candidates for valuable federal and state Research & Development (R&D) Tax Credits. Due to the expansive definition of R&D for tax credit purposes, many of the drug & product development and process improvement activities performed by biotechnology companies often qualify for such treatment.
The Medical Device Excise Tax (MDET) is a 2.3% tax on the medical device sales price imposed on manufacturers, producers, and importers of many (though not all) medical devices. However, there are several opportunities to recover the MDET, such as identification of applicable exemptions and exclusions. Discuss these opportunities with a MDET professional to determine appropriate strategies.
Taxpayers who are deemed a "qualified small business" and perform qualified research are eligible to offset up to $250,000 of the employer portion of FICA payroll tax, starting as early as the 2nd payroll tax quarter in 2017. To qualify as "qualified small business", the company must have a taxable year that began after 12/31/2015, gross receipts for last year of less than $5 million, and no gross receipts (as so determined) for any taxable year preceding the 5-taxable-year period ending with such taxable year. Click here for more information.