The R & D Credit: Available for American Manufacturing and Other Industries
Many business owners today perform research and development activities that may qualify for the research and development credit (R & D credit) and they aren’t even aware of it. Congress passed more liberal R & D credit incentives after 2001 to help US manufacturing be more competitive in the global market.
Even with the more liberal R & D credit regulations, the IRS estimates that only 10% of the companies that qualify for the R & D credit actually receive it. The R & D credit is a cash incentive to help companies, ranging in size from small to large, offset the cost of innovating.
Because of the importance of the R & D credit to our clients, Boge, Wybenga & Bradley, P.C. has become a Titan Armor R&D Tax Credit Software Strategic Partner. By combining Titan’s expertise and software solution with our experience and know how, we can guide you to make sure you receive the full benefit of the potential tax credits pertaining to research and development. The following video will gives you a brief summary of some of the criteria that must be met in order to qualify for the R & D credit.
Who Qualifies For The Credit?
Any company that develops, designs or improves products, processes, formulas, techniques, inventions and/or software coding, are eligible for the credit. The R & D credit can evolve from engineering, software developers, factory workers, tooling and maintenance workers as well as a variety of other tasks performed in daily business.
The R & D credit takes into consideration federal W-2 wages, supply costs and contracted labor. The credit is a general business credit and is a dollar for dollar reduction in the tax liability of the company. It is also available for flow-through entities such as S-Corporations and Partnerships and would directly reduce the individual taxpayer’s federal tax liability.
There are four basic IRS requirements that must be met to qualify for the credit.
- There must be a New or Improved Business component. There are six types: Product, Process, Software, Performance, Techniques, Formulas and Inventions. The new or improved = permitted purpose. Are there new or improved functionality, performance, reliability and/or quality?
- There needs to be Technical Uncertainty. The taxpayer needs to be endeavoring to discover information that was uncertain at the outset of the project. Three types of uncertainty – Capability, Method or Final Design
- There is a Technical in Nature Test: In an effort to resolve the uncertainty, the taxpayer must fundamentally rely on the principles of either of the following:
- Physical Science
- Biological Science
- Computer Science
Relying on the principles doesn’t require a formal education
- Lastly, the Process of Experimentation: The taxpayer needs to evaluate ONE or more alternatives in an effort to address the uncertainty that they had at the outset of the project through trial & error, simulation and/or modeling. Failure before success in the research isn’t a requirement in this area.
Eligible Industries Include:
- Aerospace and defense
- Architectural and Engineering
- Dental Labs
- Design-Build Manufacturing
- Metal Fabricating and Casting
- Oil & Gas (Excluding Exploration)
- Software Development
- Tool and Die
Qualifying Activities Include:
- Designing new, improved or more reliable products, processes or formulas
- Designing new products, tools, molds, jigs and dies
- Developing and applying patents
- Certification testing
- New concepts and technology
- Improving manufacturing processes
- Building new manufacturing plants
Boge Wybenga & Bradley is a Titan Armor R&D Tax Credit Software Strategic Partner