Is Your Company Sitting on Hidden Cash?

March 9 2017 | by Thomas J. Moul, CPA

Maybe you’ve heard of the Research and Development (R&D) tax credit but didn’t believe you would qualify. You’re not alone! Based on our experience, that’s the most common reason why manufacturers miss out on the benefits of this credit.

Myth #1: My Company Doesn’t Do Anything That Would Qualify.

The primary purpose of the Federal R&D Tax Credit is to encourage and reward manufacturers who not only introduce a new or improved product to the marketplace but also those that improve the manufacturing process. Consider for a moment, has your company initiated a process to make a product quicker, less expensive, or more environmentally friendly? For most companies (unless they are stuck doing things the same way for the past decade), they may be a candidate for the credit.

Myth #2 – The Type of Research We Do Isn’t Covered Under the Credit.

The R&D tax credit extends to both basic and applied research. It’s a way to reward problem solvers in the manufacturing industry.

Typically, applied research focuses on a specific problem or opportunity which may result in an economic gain or social improvement. When a company conducts applied research they take things that might work and attempt to narrow down the feasible solutions. In short, applied research answers a question in order to solve a problem.

On the flip side, basic research has a much broader scope. This research type involves scientists and/or researchers who will often rule out things that won’t work and identify products or processes that might work. Basic research attempts to learn things that aren’t necessarily part of a solution to a problem, rather it is the gathering of knowledge that we don’t already possess.

Myth #3: My Company is Too Small to Take Advantage of the Credit.

Even small and mid-sized manufacturers can use the R&D credit to make a nice deposit into your cash flow. Thanks to recent legislation, the R&D credit is now permanent and much more small business friendly. Eligible Small Businesses (defined as a business with less than $50 million in average gross receipts for the three preceding years) are now able to use the R&D tax credit to offset their alternative minimum tax (AMT).

For more information on the R&D credit check out our video above by Tom Moul and don’t miss Tom’s on-demand webinar, Manufacturing Tax Strategies for Growth.

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