For companies designing underwater vessels, ocean-going vessels, and ocean-going platforms, technical uncertainty is part of everyday life. Yet, many companies in this space underutilize the Research and Development (R&D) Tax Credit, a powerful financial tool that can meaningfully offset costs and accelerate innovation. Here’s how diving into the details can pay off.
What is the R&D Tax Credit?
- The R&D Tax Credit offers a dollar-for-dollar reduction against a company’s tax liability for qualified expenditures on qualified research activities in the United States.
- It applies not only to traditional “high tech” or software companies. Manufacturing, engineering, and product development firms may also be eligible.
- Potentially qualifying costs include wages, supplies, contract research, prototypes and testing expenses incurred in the U.S., even if the work doesn’t happen in a lab.
- Innovation does not have to result in commercial success. Projects that fail or iterate repeatedly still may qualify, as long as they involve experimentation and technical uncertainty.
- State-level R&D tax credits: Many states offer their own R&D tax incentives in addition to the federal credit, providing further opportunities to reduce state tax liability or even offset payroll taxes.
Submarine and underwater-vessel projects often involve developing new materials, testing hydrodynamic hull designs, improving sealing systems, refining composite-metal bonding, reducing noise, incorporating sensors, or creating advanced control-system software. All of these activities are exactly the kind of R&D that the tax credit is designed to support.
Which R&D Activities in Subsea and Oceanic Vessel Engineering May Qualify?
Here are some concrete examples where a marine‑engineering company might claim the R&D credit:
- Composite-Metal Bonding & Materials Development:
- Testing new bonding processes, adhesives, joint designs, corrosion‑resistant coatings, or hybrid-material hull structures, especially when uncertain how materials will behave under pressure, saltwater, or temperature extremes.
- Prototyping & Physical Testing:
- Building hull prototypes or scale models for hydrodynamic and structural testing, and trialing different hull shapes, control surfaces, ballast, and trim systems.
- Sealing, Waterproofing & Pressure‑Tolerance Systems:
- Designing and testing seals, gaskets, pressure‑compensation systems, or ballast mechanisms to ensure safe submergence, pressure resistance, and long-term durability.
- Creating Novel Systems:
- Development of advanced sensors, submarine electronics, navigation systems, and sonar or control‑system software, especially when the functional interfacing requires custom engineering, novel arrangements, and rigorous testing.
- Process & Manufacturing Improvements:
- Developing or improving manufacturing processes for hull fabrication, welding or bonding methods, automated assembly procedures, or specialized fabrication or assembly tooling.
Many of these activities, like prototyping, testing, iterative design, and improving manufacturing processes, can qualify for the R&D Tax Credit because they involve technical experimentation and innovation.
How Can the R&D Tax Credit Improve Cash Flow and Competitive Advantage?
Applying the R&D credit can bring tangible financial benefits that are especially valuable in capital-intensive industries, like submarine and marine vessel manufacturing.
Gains may include:
- Reduced tax liability and increased liquidity:
- Companies may potentially offset a portion of their federal (and sometimes state) tax liability to free up cash that can be reinvested in further R&D, operations, or scaling manufacturing.
- Boost in profitability and balance-sheet value:
- For profitable firms, the credit can help increase after‑tax margins. For firms with future financing or acquisition plans, stronger cash flow and demonstrated R&D investment may lead to increased valuations.
- Support for unprofitable or early‑stage ventures:
- The credit isn’t reserved only for big or profitable firms. Small and mid‑sized engineering firms can claim credits, and companies lacking tax liability may be able to carry credits forward or apply them against payroll taxes (depending on jurisdiction).
- Improved competitive advantage:
- Because marine and underwater engineering are technologically challenging and competitive, the ability to offset R&D costs can enable companies to undertake more ambitious innovations.
Innovation Below the Surface Pays Off Twice
Engineering and developing submarines or underwater, oceanic vessels is inherently costly, risky, and technically demanding. But the R&D Tax Credit offers a way to lower the risk of innovation, helping firms transform costly, uncertain engineering efforts into long-term competitive advantage.
For companies in submarine and vessel manufacturing, particularly ones pushing the boundaries of composite‑metal bonding, novel hull designs, advanced sealing systems, or integrated underwater systems, the R&D Tax Credit isn’t just a nice-to-have: it’s a strategic asset.
Connect, Learn, and Maximize R&D Tax Credits
Don't leave money on the table. Connect with Randy Eickhoff, CPA, Acena Consulting's Founder & Head Coach, for a complimentary R&D consultation to get the most out of your taxes.
Register for our free monthly webinar, next on Jan. 20, 2026: Cracking the (Tax) Code for R&D.
- This workshop provides one continuing education (CPE) credit for professionals maintaining their continuing education (CEs).
- Discover more about qualifying and documenting R&D activities to receive tax incentives.
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Photo courtesy of DVIDSHUB on Flickr.