Do 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.
- 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.
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 email@example.com.