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Attention Manufacturers: You Probably Qualify for R&D Tax Credits

Sikich

Nov 21 2018

3 min read

In today’s competitive global marketplace, manufacturers must constantly innovate in response to evolving customer needs. The companies that do this will more than likely end up performing activities that qualify for Research and Development (R&D) tax credits.

Opportunities for Growth

Sikich’s 2018 Manufacturing Report found that 28 percent of survey respondents view new product or service development as their top opportunity for growth. New products can effectively drive organic growth and allow a manufacturer to take advantage of R&D tax credits.

Advantages of the Credit and How to Qualify

For small and midsize manufacturers, R&D tax credits can often be as high as $50,000 to $100,000 annually, resulting in a significant influx of capital into a manufacturing operation that can fuel ongoing innovation and growth. Oftentimes, manufacturers don’t realize that they perform activities that qualify for the credit. There’s a common misconception that a company must invent an entirely new product–never before seen in the industry–to qualify for the credits. However, if a manufacturer introduces a product that’s new to their product line or even materially enhances their existing product, it could qualify for the credits.

By taking full advantage of the credits, manufacturers will have more capital available to deploy, which could benefit their businesses. In addition, manufacturers can retroactively receive the credit for years that fall within the statute of limitation. So, even if a manufacturer hasn’t applied for the credit, they have an opportunity to benefit for activities they completed prior to the current year.

Taking the Next Step

The manufacturers that work hard to improve their products to better serve customers are leaving money on the table if they neglect to take advantage of R&D tax credits. By working with your trusted CPA advisor, you will better understand the criteria involved in determining whether your company qualifies for the credits and if you should apply for them. In many cases, your CPA advisor will seek outside counsel from organizations with engineering expertise that specialize in these studies. Together, they can thoroughly assess your organization’s R&D activity and create a comprehensive report that is designed to stand up to scrutiny by taxing authorities.

Other Opportunities for Manufacturers

The 2017 Tax Cuts and Jobs Act offers benefits to manufacturers, including lower tax rates and opportunities for additional tax savings related to capital investments. The law lowered tax rates for C-corporations from 35 percent to 21 percent. Non-corporate entities can take advantage of a 20 percent deduction for “qualified business income” (for more information on this 20 percent deduction, please reference this article).

Additionally, the law presents opportunities for tax savings when it comes to capital expenditures. The law allows for 100 percent bonus depreciation for new or used property acquired and placed in service after Sept. 27, 2017. This provision, combined with changes in Section 179 expensing rules, gives manufacturers the opportunity to fully write off their fixed asset acquisitions and generate significant tax savings.

For more information on R&D tax credits and how your business can qualify, contact our manufacturing tax experts.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

About the Author

Sikich

Sikich is a global company specializing in technology-enabled professional services. With more than 1,900 employees, Sikich draws on a diverse portfolio of technology solutions to deliver transformative digital strategies and is comprised of one of the largest CPA firms in the United States. From corporations and not-for-profits to state and local governments and federal agencies, Sikich clients utilize a broad spectrum of services* and products to help them improve performance and achieve long-term, strategic goals. *Securities offered through Sikich Corporate Finance LLC, member FINRA/SIPC. Investment advisory services offered through Sikich Financial, an SEC Registered Investment Advisor. 