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The R&D Tax Credit: A Great Tax Planning Tool for Manufacturers

Posted by Concannon Miller on Tue, May 31, 2016

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RD_Tax_Credit-1.pngDo you have a new product idea you want to test, but are worried about how to afford it? The Research and Development Tax Credit may be a great financing option.

The R&D Tax Credit – also known as the Research and Experimentation or R&E Tax Credit – has been in effect since 1981 and was just recently made permanent by Congress.

With this credit’s new permanent status, it can be a great tax planning tool going forward for manufacturers.

The end result doesn’t even have to produce a new product, but you can get tax credit for qualified expenses, including wages for qualified services, supplies used in R&D activities and up to 65% of contract services.

R&D Tax Credit Qualifying Activities by IndustryEven if you’re not looking to develop a new major product, you could possibly qualify for R&D credits. Other qualified activities can include:

  • Developing new, improved or more reliable processes or formulas
  • Developing, implementing or upgrading software or systems
  • Improving processes or reduce waste
  • Designing tools, jigs, molds, or dies
  • Developing prototypes or models


We have a list of many more activities that generally qualify for the credit - including activities by industry - and details on the IRS's four-part test to receive the credit. Click here for more information.

The qualification rules are fairly complex, but we’ve helped many manufacturers determine if they’re eligible. Also, a study must be conducted for R&D Tax Credits, so there should be a tax/benefit analysis to determine if the tax savings will exceed the cost of the study.

READ MORE: Tax Tips for Manufacturers Seeking Increased Cash Flow

If you’re a Pennsylvania-based manufacturer, the state also offers R&D Tax Credits in addition to the federal benefit.

The R&D Tax Credit can even help newer companies that aren’t yet turning a profit because you can carry over the credit to future years when you do have income.

For more information on the process for discovering whether your company qualifies for these lucrative credits, please contact our office at 610.433.5501 to speak with a member of the tax team, or email info@concannonmiller.com.

Topics: Manufacturing

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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