The manufacturing industry alone claims annual R&D tax credits in excess of $7.4 billion.
Innovation drives the manufacturing industry, and the goal of providing R&D tax credits is to encourage exactly the type of efforts that are at the core of Industry 4.0. Your organization doesn’t have to develop new products or engineer brand new manufacturing processes to qualify for the R&D tax credit. If your organization is attempting to develop or improve manufacturing processes or products, it may be eligible for federal, state, and non-U.S. R&D tax benefits.
These credits are a dollar-for-dollar offset against regular income tax liability and have enabled many startup and mature businesses to hire additional employees, invest in new technologies and equipment, and finance other business objectives.
Your organization can benefit from R&D tax credits even if it’s not paying income tax currently, because many states offer refundable credits. Moreover, state and federal R&D credits may be carried back to the prior tax year or carried forward to later tax years.
Is Your Manufacturing Organization Eligible?
Your organization may qualify for R&D tax credits if it pays the following types of employees or contractors to develop or improve products and processes:
- Manufacturing engineers
- Product engineers
- Process engineers
- Software engineers
- Design engineers
- Project engineers
- Test engineers
- Engineering technicians
- CNC operators
- CAD technicians
- Designers
- Drafters
- Fabricators
- Machinists
- Plant operators
- Manufacturing managers
- Assembly technicians
What Activities Qualify for the R&D Tax Credit?
Examples of potentially qualifying activities include:
- Designing and developing custom tooling and fixtures
- Developing prototypes to meet various customer specifications and requirements
- Redesigning a manual process as an automated one through software development
- Designing, building, and testing first article prototypes
- Performing custom fabrication specific to a customer’s need
- Developing new or improved processes to increase yield or overall performance
- Improving quality assurance processes to increase product reliability
- Developing new or improved processes or products to meet federal or state regulatory requirements
- Developing new or improved techniques to enhance a product’s or process’s performance
If your organization is not developing these processes or products in-house but is paying a third-party for engineering services, product designers, testing services, and/or fabrication specialists, the organization still may potentially qualify for an R&D tax credit.
For more information on calculating and claiming the R&D Tax Credit, read our R&D Tax Credit FAQ.