Are you engaged in manufacturing activities that introduce or improve processes or products? If so, you are likely to qualify for valuable, federal Research and Development (R&D) Tax Credits. What’s more, two-thirds of U.S. states also offer tax credits for R&D activities.
Many manufacturers are unaware that they may be eligible for up to tens of thousands of dollars in state and federal tax incentives—dollars that could help them remain competitive in the marketplace. While the Tax Cuts and Jobs Act of 2017 made many changes to the U.S. tax code, it retained the current permanency of R&D credits, underscoring the importance of U.S. investments towards innovation.
Qualifying Activities
The R&D tax credit can provide a hidden but immediate source of cash for manufacturers, not only from previous years, but also a significant reduction to current and future years’ federal and state tax liabilities. Here are just some of the qualifying activities for manufacturers:
- Develop a product via computer-aided designing
- 3D modeling and prototyping
- Design and manufacturing equipment
- Alternative material testing
- Improve production and manufacturing
- Develop new or improved processes or products
- Develop tooling and assembly design solutions
- Design and develop cost-effective business tasks or activities
- Value engineering
- Improve manufacturing practices and product performance
- Evaluate material or substance flows
- Design and evaluate process alternatives
- Product design processes – prototype design, development, and testing
The Four-Part Test
A simple four-part test helps to determine which manufacturing activities constitute qualified research according to criteria established by the IRS:
- Permitted Purpose: The activities must relate to new or improved business components, function, performance, reliability, and quality.
- Technological in Nature: The activity performed must fundamentally rely on principles of physical or biological science, engineering, and computer science.
- Elimination of Uncertainty: The activity must be intended to discover information to eliminate uncertainty concerning the capability, method or design for developing or improving a product or process.
- Process of Experimentation: The taxpayer must engage in an evaluative process that can identify and evaluate more than one alternative to achieve a result. This may include modeling, simulation or a systematic trial and error methodology.
R&D Tax Credit Study: Documenting Your Activities
Claiming R&D tax credits requires a fair amount of documentation required by the IRS. That’s why it’s important to seek professional help from a consultant with a strong expertise in helping manufacturers successfully claim these valuable tax credits.
The R&D tax experts at Engineered Tax Services dig much deeper into the fundamentals of your business activities—incorporating operations, engineering, financial, and tax expertise that results in more credits and meticulous documentation that is necessary to support your activities, costs, and credit. There is a direct correlation between the amount of your defensible credit and the expertise of the advisor performing the tax credit study.
Learn More About R&D Tax Credits for Manufacturers
The R&D tax experts at Engineered Tax Services have helped companies of all sizes across the U.S. identify and qualify these expenditures and receive the tax benefits they have been missing. Our process begins with an R&D Tax Credit Qualification Analysis to make sure your company qualifies for the R&D tax credit.
Our R&D tax credit team consists of engineers, CPAs, and attorneys who have extensive experience conducting studies at both the state and federal levels. The process begins with an assessment to ensure that the company qualifies for the credit and would be able to utilize its benefits.
