R&D tax credits may provide a method for taxpayers who are engaged in qualified research and development activities to earn credit against their income tax. Manufacturers may be able to include the cost of supplies they used or destroyed during their research and development efforts, employees, wages, and expenses incurred during research. R&D tax credits may lead to significant savings for manufacturers. They may free up capital that can be used to further research or for growth. Unfortunately, many manufacturing companies do not realize that they may qualify for R&D tax credits.

Tax Planning For Manufacturing Companies: Qualifying For R&D Tax Credits

In late 2015, President Obama signed The Protecting Americans from Tax Hikes Act into law. This law made research and development tax credits a permanent part of tax law. Credits may offset AMT (Alternative Minimum Tax) for small businesses or offset payroll for startups that meet the qualifications. Manufacturers that operate as an S corporation or partnership and have less than $5 million in annual gross receipts or that do not have gross receipts for the five proceeding tax years may also qualify. Accounting for manufacturers can include research and development tax credits if the products being manufactured involve creating multiple iterations of prototypes prior to creating the final prototype design that will eventually be mass-produced and put through quality control and quality assurance tests. A car manufacturer may need to produce multiple iterations of a prototype alternator. For example, the alternator may pass through an application lab and a fabrication lab and go through a number of tests prior to that alternator being rolled out in the commercialization phase.

In this bookkeeping scenario, manufacturers looking to use the research and development tax credit may include the cost of running experimental batch trials, any changes to the conceptual framework of the alternator that was used to achieve proof of concept, and other expenses involved in improving the alternator, making the alternator more efficient or completely redesigning the way the alternator works. At Fusion CPA, we have a team of seasoned accountants who understand the intricate details of research and development tax credit laws. Our goal is to apply our knowledge and experience in tax planning to help manufacturing firms minimize their tax liability.

Manufacturing Offers Ample Opportunities to Earn Research and Development Tax Credits

Traditionally, manufacturing companies focus on developing new products or making existing products better. The expenses they occur related to improving the performance, reliability, or quality of a product should be included in their bookkeeping ledger as they may qualify to be offset by research and development tax credits. An experienced CPA, who understands the manufacturing industry can help clients weed out activities that do not qualify for tax credits. These could include time spent changing the style, cosmetic aspect, or seasonal design factors of a product. It would also include reproducing products that are already available without providing significant enhancements.

Expert Assistance: Navigating Tax Planning For Manufacturers

As you may see, identifying research and development tax credits may be complex. This post barely scratches the surface of opportunities manufacturers have to qualify for research and development tax. At Fusion CPA our team of accounting professionals aims to help you gather the details needed to establish and defend contract manufacturing research and development claims. It requires a laborious and meticulous review of bookkeeping for manufacturers. This arduous and nuanced process when properly carried out may produce phenomenal cost-saving benefits. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!


This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.