Posted by Robert Hancock on 06.22.20
During this time of Covid-19, the U.S. manufacturing industry has had to adjust to changing market needs. Demanding research is currently underway for the development of a vaccine, accelerated testing processes, and other new technologies necessary during the COVID-19 global pandemic. Essential equipment is needed by our healthcare providers, including PPE (Personal Protective Equipment), like face shields, jumpsuits, clinical waste bags, disposable head covers, plastic sheets and plastic aprons. There’s also the manufacturing of ventilators and medical test kits that are in short supply. Manufacturing companies are responding by pivoting their operations to produce products to help in the fight against COVID-19.
Manufacturers can utilize the R&D tax relief to their advantage in order to help them get their businesses back on track. In order to remain competitive in the market, companies are constantly researching and developing ways to manufacture faster, with better quality and for less money. This can include automating processes, eliminating waste, recycling waste material, and many others.
As manufacturers work to address this shortage of critical products and the changing market needs, they have to quickly figure out the technology required to successfully produce these items. The development of these product designs and the associated manufacturing processes involve significant R&D across many different aspects of manufacturing industries. Some of the larger corporations like FORD are partnering together with companies like 3M and General Electric to manufacture 3D printed face shields, masks and American made ventilators. As companies adjust to changing market needs in uncertain times, being aware of all potential benefits is critical to the decision making process. Cash flow is one primary concern for all businesses. In the manufacturing industry, R&D tax credits remain a generous form of funding for innovative businesses. Manufacturing companies attempting to develop new or improved products or processes, or software are eligible for federal and state R&D tax credits. These credits can equal up to 15 percent or more of qualified spending costs, i.e., taxable wages, supply expenses, and a percentage of contract research expenses related to the research conducted.
Some Manufacturing Activities that qualify for R&D
What Manufacturing Companies Need to Do to Take Advantage of This Opportunity
Documentation is key in any R&D credit claim. This includes documentation regarding the activities taken place, those involved and to what extent, as well as any costs incurred during the research process, such as supplies or contractors. Far too many taxpayers rely on non-specialist preparers to calculate the R&D credit, often resulting in an audit risk for overstating the credit or leaving opportunity on the table by understating it, as well as not preparing the documentation required to substantiate the credit.
Given the significant funds available in the form of R&D tax credits, it is worth exploring if your manufacturing business may qualify. Tax Point Advisors understands your business and the regulations to confirm if your process or product improvements qualify. During these times of uncertainty, Tax Point Advisors is continuing to offer their expert tax advice via tele-services. Our qualified tax professionals are standing by to video or teleconference or even text chat with you. For more information, call us at (800) 260-4138, or please leave us a message below.