Many manufacturers don’t realize they could be leaving money on the table. If your business invests in innovation — whether that’s developing new products, improving processes or enhancing existing technologies — you could qualify for the research and development (R&D) tax credit.
The R&D tax credit offers a tax saving opportunity and can add up quickly, providing a significant financial boost. With the money you save, you can hire more employees, expand research efforts, invest in new equipment and fuel future growth. If you're a manufacturer, these tax credits are worth exploring.
In this video, Kevin Connelly, CPA, co-director of Gross Mendelsohn’s Manufacturing & Distribution Group, and Paul McVoy, principal and R&D tax credit consultant at KBKG, explain how business owners can claim the R&D tax credit.
Examples of Qualifying R&D Activities
The following are just a few examples of qualifying activities. If your business executes any of these projects, or something similar, you could be eligible for the credit.
- Identifying the best tooling setup and equipment placement for efficiency
- Enhancing quality assurance processes to improve product reliability
- Strengthening products by improving durability and service life
- Refining manufacturing processes — like packaging, sealing, etc. — to reduce waste, improve sustainability and increase flexibility for growing product lines
The Four-Part Test
If your business’s project(s) meet the following criteria, you’re likely eligible for the R&D tax credit. Of course, you’ll want to work with a CPA or qualified R&D tax specialist to discuss your business’s unique situation.
- Clear purpose: Your R&D efforts should focus on developing or improving a product, process, software, formula or technique. The goal is to tackle a technological challenge, not just carry out routine business tasks.
- Rooted in science: Your work must be based on principles from engineering, physical sciences, biological sciences or computer science. In other words, it needs to involve systematic, science-driven methods — not just trial-and-error guesswork.
- Experimentation: The process should involve structured experimentation. That means testing different approaches, analyzing results and adjusting your methods along the way. Simply following standard procedures won’t cut it.
- Addressing uncertainty: R&D activities should tackle unknowns in technology, design or engineering. If you're working through complex technical challenges rather than just making small adjustments, you might qualify.
Need Help?
Interested in claiming the R&D tax credit for your business? Contact us here or call 800.899.4623 for assistance.