Is Your Medical Device Company Missing Out on the R&D Tax Credit?

3 Minute Read
Posted by Randy Eickhoff on Oct 14, 2019 11:18:49 AM

The medical device and equipment market is thriving. Recent statistics show that the U.S. touts the world's most robust healthcare equipment industry, reaching $156 billion in 2017 (40 percent of the entire global market). Experts predict that the nation's medical technology vertical will continue to expand, with forecasts of over $200 billion by 2023.

Despite the rampant surge in medical technology development, many healthcare equipment manufacturers don't realize that their operations may be eligible for the U.S. government's generous research and development tax incentive. Some qualifying medical device and equipment organizations do know the R&D tax credit program exists. However, they simply don't have the resources and insight needed to optimize the program's lucrative cash flow opportunities; they assume that pursuing the innovation tax credit is only for businesses with a wing dedicated to laboratories and scientists clad in white coats. As a result, these organizations often miss out on a potentially significant tax return that could substantially reduce their overall burden and increase their annual profit margins.

A Broad Spectrum of Medical Equipment Practices Qualify for R&D Tax Credits

Fortunately, laboratories and scientists are not required to leverage the benefits of the R&D tax credit. Under the Internal Revenue Code's research and development requirements, there is a diverse spectrum of medical technology companies that perform operations that qualify for the innovation tax incentive.

Software designers, device engineers, equipment machinists, and other staff members may all spend a sizeable amount of time performing eligible tasks and functions that create new technologies or improve existing innovations within a medical tech company's operations. To be considered for the tax credit, eligible research and development activities must demonstrate:

  •       Tasks that are technological in nature
  •       Functions that result in new or improved processes, products, or software
  •       The elimination of uncertainty
  •       A process of experimentation

Some qualifying research and development activities may include:

  •       Creating engineering drawings and specs
  •       Performing new product designs and development
  •       Designing a new packaging process for sterilized medical tools
  •       Increasing efficiencies with robotic automation
  •       Creating a prototype medical device
  •       Developing equipment that complies with increasing regulatory mandates
  •       Inventing prototypes for testing and validation.

Typically, manufacturers that perform operations that meet R&D compliance can receive up to 10 percent of qualified R&D costs in the form of a federal credit. Eligible research and development costs can include supply expenditures, expenses related to patent development, testing outlays, and employee wages. Medical device companies may also be able to claim the innovation tax credit if the qualifying activity was conducted by outside contractors, making it essential to assess any additional expenses related to their operations.

Manufacturers of Every Size Should Explore R&D Tax Credit Eligibility 

Bottom-line, the U.S. medical device-manufacturing field is rife with innovation and state-of-the-art technology development and advancement ‒ and you don't have to develop cutting-edge machinery or invent an entirely new software program to use the R&D tax credit to lower your taxpayer burden. The continuous evolution of these products makes it highly likely that most device manufacturers will have qualifying activities within their organization. Most importantly, the PATH Act leveled the R&D tax credit playing field for companies of every size and scope. Even small-scale medical manufacturers can tap into this dollar-for-dollar, government-backed tax program for increased revenues, efficiencies, and overall return on investment. 

Contact Acena Consulting today to learn more about how your medical device company can leverage the benefits of the R&D tax credit.


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Randy Eickhoff

Randy Eickhoff

Acena Consulting President Randy Eickhoff, licensed CPA, has partnered with more than 200 companies during more than 20 years of experience securing tax credits and other government incentives. His corporate partners range from multinational technology firms to smaller, privately held manufacturing, sports, and technology enterprises.