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Client is amending their Federal and California 2014 S Corporation tax return to take advantage of $25,000 in research and development credits on Form 6765 and FTB Form 3523
The Alternative Simplified Credit (ASC) was not allowed because the time to take the ASC had expired.
The credit was comprised of only labor items, both in cost of goods sold and administrative expenses. No capital items were used in the calculation.
We reduced the labor items by $25,000 in preparing the amended Federal tax return, and we applied the reduction in expenses as an M-1 adjustment on the amended Federal tax return.
The California credit calculation on FTB Form 3523 is $18,000, but the $25,000 Federal expense reduction appears on the amended California tax return.
· Is this presentation correct, or
· Are California expenses reduced by $18,000 to equal the amount of the California credit on Form 3523, and the difference reported as an M-1 adjustment on the amended California tax return?