Companies Utilizing Drone Technology Shouldn’t Let Valuable R&D Tax Credits Fly Away

Companies Utilizing Drone Technology Shouldn’t Let Valuable R&D Tax Credits Fly Away

Posted by Jeffrey Feingold on 03.28.18

Drone technology and manufacturing has expanded into areas across many industries, and the technology is evolving rapidly. Drones, also known as Unmanned Aerial Vehicles or UAVs, are sophisticated machines with an array of mechanics, chips and software designed to do specific tasks. The advancements and increasing technology are being applied to a wide range of commercial uses throughout the United States, and will require a substantial amount of additional research & development. Engineers, manufacturers, and other individuals engaging in current research and development of drone technology are eligible for R&D federal and state tax credits. The research and development credit encourages companies to make long-term investments in U.S. based R&D that will create U.S. jobs, boost our economy, and continue to spark innovation.

Drones have been used throughout our military and homeland security since the 1970s, mostly for combat or surveillance. Only recently has the UAV technology begun to expand product development from military drones and branch out into commercial industries. Technologies such as artificial intelligence, advanced communications and telemetry mean that advanced UAV operations will increasingly be part of day-to-day life in the very near future. With the increase of drone use there will also be a need for developments in drone air control as well as drone safety measurements and requirements.

Drone technology has the potential to be used for numerous applications including:

  • Agricultural Industry
  • Surveillance and Law Enforcement
  • Land Surveying, Building Code and Zoning Inspection
  • Commercial Photography
  • Real Estate Site Selection and Mapping
  • Forestry and Wildlife Management
  • Traffic Management
  • Communications and Cell Phone Satellites

The widespread use of drones throughout so many industries is a major technological development that is starting to impact our everyday life. Federal and state tax credits are available to a host of companies currently utilizing drone manufacturing and technology, for activities that are necessary for research and development (R&D). Contrary to a common misconception, R&D tax credits are not limited to scientists, medical researchers and others wearing white lab coats. The permanent extension of the R&D credit in 2015 was a great wake-up call for companies with eligible activities to take notice of their eligibility and to apply for the tax credits.

What is the R&D Tax Credit?

Federal research and development (R&D) tax credits can deliver an immediate and significant benefit to a company as a result of innovative activities. While the tax credit originally pertained to basic research expenses, such as those occurring in a laboratory setting, subsequent modifications have simplified the credit and made it available to a wider variety of businesses. Hundreds of activities being performed everyday can qualify for this powerful tax savings tool.

R&D tax credits can immediately benefit a company in several ways:

  • A source of cash for reinvestment or other needs
  • Significant reduction to current and future tax liabilities
  • Credits may carry forward up to 20 years

To learn more about the benefits of R&D credits, read some of our success stories.

How does a company qualify?

To assess qualification for any given project, the experts at Tax Point Advisors may ask about a four part test that embodies the definition of qualified research for the R&D tax credit:

  1. Are you trying to make improvements to your products or processes?
  2. Does the project or activity involve aspects of the hard sciences, engineering or computer sciences?
  3. Was there any uncertainty in regards to your development during this project?
  4. Did you have to analyze your results or develop prototypes?

The following are some examples of qualifying activities in drone manufacturing and technology:

  • Experimentation in scheduling and task allocation
  • Optimizing workload between multiple drones and ground control stations
  • Interpreting inbound information and data from multiple sensors
  • Selecting the best route or paths while still meeting objectives and constraints
  • Calculating maneuvers and flight patterns to stick to flight paths
  • Developing measures and strategies for staying within a specified area or path
  • Experimenting with multiple communication/coordination methods
  • Keeping the drones up in the sky for prolonged periods
  • Experimenting with energy sources (solar or hydro)

Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and their clients throughout the U.S. To learn more about R&D tax credits from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.


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