How to take advantage of the Michigan R&D Tax Credit

Posted by Jeffrey Feingold on 01.20.14

Michigan companies have a favorable tax credit available to them not only on the federal level, but also on the state tax level.  Many companies do not claim it because they don't understand that they qualify, or they are afraid of being audited. This is a bottom-line, dollar-for-dollar tax credit for research and development.  It is not a deduction.  This is one of the most significant money saving tax incentives ever offered by the government.

The reason behind the incentive

The federal government passed a law to grant US companies an R&D tax credit in order to create jobs and stimulate the economy as well as to keep American products technologically savvy.  Over time this tax credit has become better defined and opened to more and more industries.  Most industries qualify.  Research doesn't have to be done in a laboratory.  It can be a new process or method that is being used.  It only has to be new to the company, not new to the industry. Even mom and pop shops can qualify.

Details of the MI R&D tax credit

If a company qualifies for the federal R&D tax credit, they qualify for the MI R&D tax credit, too. This can be a significant savings when you add the state claim of 1.9% of qualifying expenses incurred in Michigan during the tax year to the money saved on the federal taxes. Starting with the 2009 tax year, Michigan taxpayers can claim a 1.9% state tax credit as well as the federal one. Adding this to their savings with the federal R&D tax credits makes a significant difference for most companies allowing them money to purchase machinery or provide new jobs.

The fear of the audit

Some companies who qualify will not take the tax credit because they fear the audit.  This fear can be easily overcome by hiring a good R&D tax credit company, like Tax Point Advisors, to document everything for them. Thousands of dollars in savings are on the line.

Understanding who qualifies

Use this simple four-part test to help to determine if you might qualify:

  • Does your company undertake activity intended to develop a new or improved product or process for yourself or your customer? Do you create a product, process, technique, formula or invention to improve performance, functionality, reliability or cost?
  • Does this activity seek to eliminate technical uncertainty (this can be uncertainty as to technological feasibility but it does not have to mean the potential of failure to succeed - instead, the uncertainty can also mean as to the nature of the design/design elements)?
  • Does this activity follow a process of experimentation (this is essentially your efforts to overcome the uncertainty and to attempt to succeed in your efforts to make something new or improved or to develop a new or improve an existing process)?
  • Is this activity technical in nature (related to biology, chemistry, metallurgy, physics, mathematics, etc.)?

Where to get help

Contact your tax professional or CPA today to see if you might qualify, or call us at Tax Point Advisors for a free, no obligation consultation.  We can let you know if you qualify, how much you can expect to get back, and what our fees would be to do the paperwork for you.


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