Are you missing opportunities to capture tax savings through research and development (R&D) tax credits? Medical device manufacturers conduct ongoing activities that qualify for meaningful tax savings to increase cash flow. Yet, many manufacturers fail to claim federal and state R&D tax credits simply because they don’t know they are eligible for this dollar-for-dollar reduction of income taxes.
Eligible R&D Activities for the Medical Device Industry
The following activities are just some of the medical device industry activities that may qualify for R&D tax credits:
- Using innovative methods or technologies
- Enhancing existing product design
- Creating and testing new medical devices
- Enhancing factory production or processes
- Producing new medical products, equipment technology or devices
- Developing and testing new product prototypes
- Developing medical devices used in research
- Producing next-generation products
Watch our video below for an overview on R&D tax credits.
Four-Part Test for Medical Device R&D Tax Credits
How do you know if your businesses’ activities qualify? The first step is to determine which activities and processes may qualify for R&D tax credits according to a simple four-part test established by the IRS:
- Permitted purpose/business component – Must relate to creating new or improved business components that result in improved function, performance, reliability or quality.
- Technological in nature – Must rely on the principles of physical or biological science, engineering or computer science. These principles can cross into many industries including manufacturing, software design, device and component development, and engineering.
- Elimination of uncertainty – Must be intended to discover information to eliminate uncertainty regarding the capacity, method or design for developing or improving a product or process.
- Process of experimentation – Should include the evaluation of different alternatives to resolve or eliminate a technical uncertainty. This evaluation may involve modeling, systematic trial and error, simulation or other methods.
Documentation
While the four-part test may sound complicated, you will probably be surprised at just how many of your activities qualify. Once your activities satisfy the four-part test, you will need to provide documentation related to projects, such as labor costs, supplies and outside cost to third parties related to performing research. Because your employees work on numerous projects simultaneously and perform different tasks, it is important to segment qualified R&D activities from all other work performed. In fact, many payroll systems can be programmed to track qualified research wages to qualified research projects.
Understandably, you may feel you don’t have the resources to satisfy these requirements. A highly qualified specialty tax expert can manage this process for you and ensure that you are not leaving any tax credits on the table.
Partnering with an R&D Tax Credit Expert
To make the R&D tax credit qualification process run efficiently, you should work with a tax credit expert that has a firm understanding of IRS requirements.
Engineered Tax Services can conduct a tax credit study to provide a comprehensive analysis of your business’ R&D activities. With this analysis, we can prepare a detailed claim package of expenses that qualify for R&D tax credits, and our professional tax experts will document your activities and expenditures. We will be prepared to defend your claims should state or federal tax authorities initiate an audit.
Don’t miss out on this valuable opportunity for your business. To learn more about qualifying for R&D tax credits for your medical device projects, visit our R&D tax credit page for more information and complete the form at the bottom of this page. If you have immediate questions about tax deductions for your business, please call Engineered Tax Services at (800) 236-6519.
