Posted by Jeffrey M. Feingold on 10.13.17
If your chemical company has spent time and resources developing new or improved products and processes, you may qualify for the research and development (R&D) tax credit.
The chemical industry creates an immense variety of products which influence virtually every aspect of our lives. Plastics, rubbers, fibers, polymers, semi-conductors, explosives, detergents, pesticides, pharmaceuticals, clothing, and even food products all involve some level of chemical engineering. The industry uses a wide range of raw materials, from air and minerals to oil. With increasing competition worldwide, innovation remains crucial in finding new ways for the industry to satisfy its increasingly refined, demanding and environmentally-conscious consumers.
R&D activity in the chemical industry sector either involves new production processes or new compositions of matter (product development). Research objectives generally include, but are not limited to, higher performing products, sustainability features, alterations aimed at regulatory compliance, and cost reductions.
Research and Development (R&D)
The federal tax credit for companies that invest in research and development (R&D) is one of the most widely used corporate tax breaks. More than 20,000 U.S. businesses—many of them small—typically claim the credit to lower their tax obligations. The credit means companies have more money available to invest in future innovation.
What Activities Qualify for the R&D Credit?
•Developing new improved or more reliable products, processes or formulas
•Conducting testing and developing prototypes, models, or samples
•Developing new technology
•Experimenting with the use of new materials and compounds
•Upgrading systems or software
Although sometimes expensive and time-consuming, research and development is crucial to the industry’s evolution. To keep competitive the chemical industry must:
•Adapt rapidly to changes in consumer demand around the world
•Find or make new products which enhance the quality of life
•Generating pilot batches of new products for testing and validation
•Development of new testing methods/protocols
•Developing new applications for existing chemicals
•Select and test locations for chemical companies so that they can access the most cost effective raw materials and energy available
•Find methods of manufacturing that use and dispose of chemicals which do not harm the environment
•Improve existing processes for making chemicals in order to use less capital expenditure and save raw materials
•Conducting tests to appease foreign regulation requirements
•Developing new or improved technologies
•Developing indicators and devices for testing
•Experimentation to increase product yield.
•Improving a product’s shelf-life
•Developing new or improved techniques or formulas
•Developing new or improved manufacturing processes
•Implementing automation processes or robotics
In the lab, chemical engineers use their training to modify the chemical composition, alter the physical makeup, and develop new processes to take existing substances and create and improved materials with desirable properties and capabilities. These and similar activities present great opportunities for federal and state R&D Tax Credits.
Not only chemists and chemical engineers but other experts are utilized in R & D and can effect the tax credit; financial (for borrowing the large sums of money needed), marketing (for ensuring that their new or improved product can be sold), legal (to ensure that the patents are secure) and many others.
Tax Point Advisors assists CPAs and their clients in identifying and securing their maximum federal R&D tax credits, as well as state R&D tax credits. For more information, contact us at (800) 260-4138, or leave us a message below.