Driving Innovation and Investments With R&D Tax Credits

As a business owner, you recognize the importance of continuous investment in your business to stay ahead of the competition. But, as the business landscape becomes increasingly competitive and globally inclusive, you may ask yourself: “Where can I find the extra capital I need to drive my business forward?” One relatively straightforward way to do this is to take advantage of the Research and Development (R&D) tax credit, a dollar-for-dollar tax credit that may be applied against taxes for costs you already incurring.

Less than one-third of eligible companies realize they qualify for the R&D tax credit. For federal purposes, the R&D credit allows qualifying taxpayers to receive up to 20% of qualified research expenditures (QREs), such as in-house research expenses and contract research expenses. QREs generally include wages paid to qualifying employees, materials and supplies used in the R&D process, and outside contractors used to develop a new or improved product or process.

Examples of manufacturing activities that may qualify include:

• Designing manufacturing equipment
• Optimizing manufacturing processes
• Designing and developing tooling and control systems
• Designing and testing prototypes

The R&D credit is not limited to the manufacturing industry. Other industries include, but are not limited to, banking, architecture and design, pharmaceutical, and software development.

In addition to federal R&D credits, more than 30 states offer some version of an R&D credit.  Planning accordingly can allow your business to reap twice the rewards on an investment you’re already making. Most states offer credits ranging from 2% to 20% incurred in their state, potentially allowing your business to return even more on your original investment.

Need help creating an R&D tax credit study to help determine which of your manufacturing activities qualify? Please contact Joe Burwick in our Tax Department at 716-332-2737 or joe.burwick@freedmaxick.com.