How are Research and Development Tax Credits Defined?

The Manufacturing Incentives benefit is a Federal program designed for Companies that perform Manufacturing in the U.S. This program is listed under Section 41 or the IRC (Internal Revenue Code) and continues to be amended on an annual basis as the U.S. Manufacturing landscape continues to evolve. This is an engineered based program that focuses on a company’s operations and processes in order to determine their qualification for incentives. The Manufacturing Incentives benefit provides an avenue to receive “tax money” back from prior years while also reducing current taxable income on a dollar-for-dollar basis.

 

History of the Program

The Research & Development Tax Credit was originally enacted as a Federal Tax Program in 1981 and was designed to encourage American investment in innovation. In 2004, tax regulation changes significantly expanded the credit opportunity. Today, the credit is accessible to many small and medium sized companies whose activities include design, manufacturing and process improvements.

 

Who Qualifies for R&D Tax Credit?

Who and what qualifies as research and development (R&D) is much broader than most realize. Activities and costs related with developing or improving a product and/or process often qualify for R&D tax credits. Furthermore, enginnering, design, testing, and programming are now included as Qualified Research Activities (QRE).

 

Industries that most commonly qualify are:
  • Manufacturing
  • Fabrication
  • Engineering
  • Software Developers
  • Chemical
  • Tool & Die
  • Machine Shops
  • Plastics Manufacturers
  • Pharmaceutical
  • Biotechnology
  • Food Sciences/Manufacturers
A QRE is a “Qualified Research Expenditure” as defined by the IRS Section 41(b).

Basically a QRE is any eligible expenses for the credit, including wages, supplies and contract research expenditures. For most companies, full-time product development engineers’ wages come to mind first and are easiest to recognize; however, a closer look at definitions and examples may lead to the inclusion of additional wages, supplies or contract research.

 

Below is a list of some tasks that can be performed within an organization that would qualify for the R&D Tax Credit:
  • Manufacturing
  • Fabrication
  • Engineering
  • New Product & Process Development
  • Developing New Concepts or Technologies
  • Design – Layout, Schematics, AutoCAD
  • Prototyping or Modeling
  • Testing / Quality Assurance: 
ISA 900X, UL, Sigma Six, etc.
  • Integration of new machinery (CNC, SLA, SLE, etc) into existing process
  • Software Development or Improvement
  • Automating /Streamlining Internal Processes
  • Developing Tools, Molds, Dies
  • Developing or Applying for Patents

 

What are the Benefits of an R&D Tax Credit Study?
  • Dollar for dollar credit against taxes owed or previously paid
  • Carry forward credit for future profitable years
  • Immediate increase in company cash flow
  • Credit average is over $25,000 per $1,000,000 in total company payroll

 

Our Methodology

A team of highly qualified professionals including IP attorneys with engineering backgrounds and adheres to the Comprehensive Project by Project Approach methodology as required by the IRS. By following this methodology, we qualify every applicable employee, activity, hour spent and corresponding wage paid in order to maximize the incentive for our client. We strictly adhere to the applicable sections of the code and provide first-in-class documentation to substantiate our findings.