The Research & Development
(R&D) Tax Credit.
Recent federal rules have eased and helped clarify ways in which companies can qualify for research and development (R&D) tax credits. The R&D tax credit is under-utilized simply because so many manufacturing companies don’t realize that the work they are doing to improve their product or the process by which they make their product qualifies for the R&D tax credit.
The initial intent of the R&D tax credits when first introduced was to encourage U.S. businesses to invest in the development of new and improved products in order to help them keep up with foreign competition. The R&D tax credit can help businesses offset their research and development expenses by 20% or more, depending upon the state in which they operate. Additionally, it may be possible to apply for credits for the past three open tax years and even closed tax years in specific situations.
What Is an R&D Tax Credit?
R&D Credits are special tax incentives that reward businesses for improvements fostered by Research and Development. The key word to associate with R&D credits is innovation. If you are designing new or improved products, or devising more efficient and cost effective production methods, why not claim tax savings you have already earned?
Your company is probably spending time and money making your business more productive—and its products and services more competitive. If so, you need to investigate this special credit, since R&D tax benefits may exceed those available through your normal tax return.
Who Qualifies for an R&D Tax Credit?
This may be a surprise: You don’t have to be a million dollar research firm or think tank to qualify for the R&D Tax Credit. Many business owners mistakenly assume that R&D tax credits only apply to high tech research in specialized medical or scientific fields. Not so. If you are improving your products, investing engineering or design improvements, or making an existing manufacturing process better through investment, innovation (or good old American ingenuity.)
If a company is engaged in any of the activities below, looking into a potential R&D credit may be a beneficial exercise. Companies engaged in the following activities should the R&D tax credit further:
- Pre-production feasibility analysis
- Pre-production test runs
- Testing new product concepts
- Testing new manufacturing concepts
- Developing new technology
- Trying new or different raw materials
- Manufacturing products
- Developing or improving production and/or manufacturing processes
- Raw material yield maximization analysis
- Preparation of technical details of Requests for Proposal quotes
- Developing new, improved, or more reliable products / processes / formulas
- Prototype Development
- Designing tools, jigs, molds, and dies
- Certification testing
- Interaction between sales personnel and engineering
- Maintenance on manufacturing and production equipment
- Adding new equipment
- Modifying used or existing equipment
- Environmental testing
- Developing, implementing or upgrading systems and/or software
- Developing production control software
- Automating internal processes
- Beta testing
- Improving processes or the manufacturability of a product
- Technical design reviews
- Participating in technical meetings
- Maintaining research equipment
- Compiling research data
- Creating more efficient and environmentally friendly designs
- CAD or 3D Modeling
Does It Apply to Me?
Do you innovate to improve your company or its products? Since innovation is the lifeblood of truly successful businesses, odds are you are already making investments in time and money that qualify for credits. Why not claim them?
To qualify for the R&D Tax Credit, the kind of business you own is less important than how you run it. Whether you sell, manufacture, engineer, design, or recycle, a preliminary review can answer your questions in greater detail. There is no cost for an initial consultation, so call us today to schedule a meeting.