Research & Development Tax Credit for the Manufacturing Industry
Manufacturers often overlook the R&D credit due to the innovation requirements. Innovation is required but not to the extent that it is groundbreaking to the industry. What comes to mind’s eye is the scientist in a white coat discovering something new to the world. This is a common misconception. The development only has to be new to your company! The experimenting on the manufacturing floor to create a better product or modifying the manufacturing process to reduce costs are the little breakthroughs that define congressional intent with this incentive.
To qualify, you simply have to be developing new or improved products or processes. Most importantly, your development must be U.S. based. If you’re performing this technical work in the U.S., you can monetize your development activities in the form of tax credits.
Qualified Activities May Include:
- Innovating product development using computer-aided design tools
- Developing second-generation or improved products
- Tooling and equipment fixture design and development
- Designing innovative manufacturing equipment
- Evaluating and determining the most efficient flow of material
- Designing, constructing, and testing product prototypes
- Increasing manufacturing capabilities and production capacities
- Developing new applications
- Improving product quality
- Optimizing manufacturing processes
Let’s say you spent the following costs in your development:
Your Federal R&D tax credit would be: $52,000
Best of all, the federal R&D tax legislation allows businesses to go back and amend up to 3 open years. Most states also offer this 3-year amendment incentive (with some states offering 4-year amendments), allowing taxpayers to double their final benefit.
Acena, a specialist in the R&D law, bridges the gap between the qualified activities and the associated costs.