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The federal research credit equals "20 percent of the excess" of current-year qualified research expenses (QREs) over the base amount, plus amounts for basic research and energy research consortia, and QREs include in-house "wages" for "qualified services," supplies, and certain computer costs.1234
For the shareholder's § 199A, the deduction equals the lesser of the "combined qualified business income amount" or 20% of taxable income above net capital gain, with W-2 wage/UBIA limitations potentially applying at higher income levels.5
California computes a separate R&D credit under Cal. Rev. & Tax. Code § 23609 (corporations) by reference to IRC § 41 but with California-specific modifications and requiring that "qualified research" be conducted "in California."678
New York personal income tax for S corporation shareholders starts from federal adjusted gross income. Because the S corporation's ordinary income flows into the shareholder's federal AGI, that reduction typically carries into New York.1112
Structure, definitions, and recordkeeping for the credit and QREs are governed by IRC § 41 and Treas. Reg. §§ 1.41-1 through 1.41-4.13141516
California provides its own R&D credit under Cal. Rev. & Tax. Code § 23609, determined "in accordance with Section 41 of the Internal Revenue Code" but with California-specific rates and rules.171819
Federal: The § 199A deduction is calculated at the shareholder level based on QBI, subject to wage/UBIA and taxable income thresholds.2324
California and New York do not offer state-level QBI deductions.2526