Posted by Jeffrey Feingold on 08.18.17
3D Printing has the potential of revolutionizing the way we make almost everything. As 3D printing continues to grow, the capabilities of this emerging technology continue to evolve and become divisions of other larger companies in many different industries. For example small businesses like jewelery designers and large car manufacturers now have faster more economic ways to produce their products. Small town dentists now can make molds in house with 3D printing instead of outsourcing and big name shoe companies like Adidas are utilizing 3D printing to create better soles for their sneakers.
Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Companies engaged in 3D printing should be taking full advantage of all available federal and state tax credits. Problem is not many companies utilizing 3D printing even know they are qualified for these tax credits.
Qualified research must meet the following four criteria:
Eligible costs include employee wages, cost of supplies, cost of testing and retesting, contract research expenses if outsourced, and all costs associated with developing a patent if applicable. Although companies doing basic research are prime candidates for this tax credit, the credit also goes to firms doing applied science, that can solve customer problems or production issues using scientific principles. For example, a 3D Printing Company recently earned $265,000 in federal and $16,000 in state credits for improving die casting, metal stamping, and precision-tools development processes. These funds were for improving the work the company did on a daily basis.
The R&D tax credit was created with the manufacturing industry in mind to find federal and state tax savings ranging from tens of thousands of dollars to well over $1 million. The credit has been part of the IRS Code since 1981. But the IRS isn’t giving away this tax credit; you need to properly document your activities and correctly apply the law. Full utilization of the credit can have a positive impact on cash flow. Companies are able to absorb lower margins on qualified projects due to the ability to lower their effective tax rate through maximum utilization of the credit. While the lower margins have decreased earnings before taxes, cash flow has increased due to the lower tax liability. At the end of 2015, the Protecting Americans from Tax Hikes Act (PATH Act) made the R&E credit permanent, giving taxpayers greater flexibility to properly plan and prepare for an R&E study to ensure they’re able to maximize the credit. The PATH Act also put in place provisions that provide companies with less than $50 million in revenue a greater benefit than was available under the previous regulations.
The R&D tax credit is a valuable proven means to generate additional value for your company in a number of ways. Tax Point Advisors can conduct a thorough R&D tax credit study to determine which activities meet the IRS’ qualification for the credits. Tax Point Advisors, a firm with expertise in working with small and mid size companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.