To compete in the global marketplace, U.S. manufacturing organizations must leverage every available incentive and cash flow opportunity. Many international companies tap into their own government's tax deduction and benefit programs. However, each year, countless qualifying contract manufacturers in the United States fail to maximize the capital-infusing advantages offered by the research and development (R&D) tax credit.
Leveraging the Benefits of the Innovation Tax Credit
Made permanent in 2015 by the Protecting Americans from Tax Hike (PATH) legislation, the research and development tax credit serves as one of the most beneficial incentives available to contract manufacturing and distribution companies. Both a federal and state credit, the innovation tax credit is one of the most significant government-backed tax initiatives, explicitly designed to help businesses of every size develop and enhance products, processes, and technology in the United States.
Unfortunately, many contract manufacturers in the U.S. overlook the research and development tax credit, for a wide range of reasons. Some manufacturing executives assume that to qualify as "innovative," a corporate operation must revolutionize the vertical, or at the very least, be performed in a scientific laboratory. Others believe that transferring ownership of merchandise and parts produced at the end of the engagement negates any potential R&D credits for the manufacturing entity.
Monetize Your U.S. Based Research and Development Activities
While manufacturing clients generally assume ownership of finished goods at the end of any production engagement, it's important to remember that the broad range of eligible R&D tax credits extends well beyond product development to include process development as well. Manufacturing any given product or part often requires a wide range of project phases, iterations, and updates, many of which may satisfy the requirements of the research and development program.
Does your manufacturing firm have qualifying innovations and process enhancements? Some eligible activities may include:
- Using computer-aided design technologies to modernize product development
- Creating advanced operational equipment
- Enhancing or improving second-generation products
- Machinery and tooling updates or designs
- Streamlining or accelerating material flow efficiencies
- Developing, building, testing prototypes
- Process development
- Quality improvement
- New application development
- Tool, jig, dies, and mold design
Worried that your manufacturing firm may have missed out on extensive incentives and deductions? Don't be– the current federal research and development grants companies in all qualifying verticals to go back and amend filed returns for up to three open years. Additionally, many states match this three-year amendment opportunity (and some municipalities even offer four-year updates) to allow eligible taxpayers to retroactively minimize their tax burden and potentially double their final overall benefit.
Don't Miss out on Your Company's Qualifying Activities
With so many eligible practices, processes, and procedures, it's easy to overlook profit-driving tax benefits within your manufacturing organization. We can help. At Acena Consulting, our team of experienced and skilled innovation tax professionals specializes in research and development tax credits. We partner with manufacturing and distribution firms across every production vertical to help our partners identify and monetize qualifying R&D activities for optimal yields that help keep their operations moving forward. Contact our team of advisors today to schedule your project consultation.
