Manufacturing R&D Tax Credits

The manufacturing sector is driven by innovation, and the purpose of manufacturing R&D tax credits is to stimulate these initiatives — especially those at the heart of Industry 4.0. However, the widespread misperception is that efforts to enhance production and distribution do not count as R&D, which means manufacturing companies can’t use benefits such as an R&D tax credit.

But you don’t need to design brand-new manufacturing techniques or invent original products to qualify. It is enough to continue developing or improving manufacturing procedures or products. Below we outline what specific actions and costs qualify for the R&D tax credit in the manufacturing industry.

Does Your Manufacturing Business Qualify for Research and Development Tax Credits?

There is a good chance that the research and development tax credit will cover your expenditures if your business is improving productivity, investing in green manufacturing, or overcoming technological challenges to find new solutions. Sectors like agriculture, oil and gas, industrial automation, apparel and textiles, automotive and OEM, chemicals, food and consumer packaging, electronics, metals and alloys, robotics manufacturing, shipbuilding and marine, consumer packaged goods, and tool and die have already claimed substantial R&D tax credits. They have received millions of dollars to reinvest in infrastructure, workforce, and ongoing innovation.

Numerous states also provide tax advantages in addition to federal credit. Start-ups and pre-revenue businesses can use the federal R&D tax credits of up to $250,000 to offset future payroll taxes if they have fewer than five years of revenue.

Qualifying Activities

• Creating and building alternative methods to increase throughput and cost-effectiveness

• Construction and testing of prototypes

• Assessing novel materials for enhanced usefulness or performance

• Developing new machinery for a certain product, procedure, or service

• The production of innovative, greener goods

• Improving the energy efficiency of the manufacturing process

• Developing and putting into practice lean manufacturing techniques

• 3D modeling and CAD

Qualifying Costs

Usually, 28% of total manufacturing expenses qualify for the R&D tax credit. Companies may deduct expenses for staff salaries, raw materials and supplies, computer rentals, and outside contractors incurred throughout the R&D process. Job titles include designers, software engineers, chemical engineers, quality control engineers, electrical engineers, process engineers, mechanical engineers, C-Suite, operations or production managers, IT specialists, and general or plant managers. For example, an OEM part manufacturer can get a $320,000 single-year credit: $1 million in raw materials and 252 CNC workers.

By amending prior-year tax filings (for the past three years), businesses are able to receive additional financial benefits from tax refunds. The IRS permits taxpayers to carry credits forward for up to twenty years if they are unable to use the R&D credits right away.

When You Need Expert Help

Still not sure if your product development or production practices meet the requirements? Our tax experts can help you with the application process and answer all your questions. We use a success-based pricing system that would allow manufacturers to collect R&D credits and refunds with no out-of-pocket expenses. We also provide full audit protection as well as a money-back guarantee.

Considerable tax advantages might be available for your business if you apply for manufacturing R&D tax credits. Take advantage of our R&D Tax Calculator to estimate how much you can get.