Posted by Jeffrey Feingold on 05.08.25
Does your manufacturing business improve a process or product for the automotive industry? Do you work to make an automotive product cleaner or more efficient? Or, perhaps you provide technical solutions that make production work more efficiently. If you are conducting any of these activities, are you taking advantage of the research and development (R&D) tax credit?
Background
The federal government implemented the Research and Experimentation tax credits in 1981 to create jobs and spur technology in the U.S., especially within the manufacturing industry. Known as R&D tax credits, the program was meant to be a temporary measure to give the economy a boost it sorely needed.
After several extensions, the credit was made permanent by Congress with the Protecting Americans from Tax Hikes (PATH) Act of 2015. As part of the PATH Act, Congress addressed an issue that had prevented many small and midsize businesses from claiming the R&D tax credit. Businesses organized as pass-through entities were taxed as such at the owner’s individual tax rate. As a result, manufacturers that could otherwise qualify for the R&D tax credit were precluded from claiming the credit. The PATH Act lifted this barrier, thus opening the R&D tax credit door to such businesses.
Given the popularity of the R&D tax credit program, many states followed suit by establishing their own programs. Today, over 40 states offer their own R&D tax credits with attractive features and additional advantages.
The Opportunity
Like other industries that thrive on innovation, experimentation and product advancements, companies in the automotive industry are well-positioned to take advantage of R&D tax credits at both the state and federal levels. In fact, roughly 30% of U.S. R&D is conducted by companies in the automotive industry, including manufacturers who create parts and components for vehicles. And while manufacturers claim the majority of tax credits at almost 40%, the tax credit is still vastly underutilized.
Less than 33% of qualifying companies actually apply for R&D tax credits.
Qualifying Activities
The R&D credit is intended for businesses in the automotive industry that improve the manufacturing process by making it more advanced, efficient and environmentally friendly. The credit is also intended for activities related to process design and development.
Think in terms of new techniques, formulas, processes, software, testing out new building materials, and the design of any new projects, such as those involving mechanical and electrical systems.
Listed are examples of the types of activities and innovation projects most likely to contain qualified research:
To learn more, read The Manufacturer's Guide to R&D Tax Credits to learn how you can save thousands – even millions – of dollars.
How to Qualify
While R&D tax credits are available, it can be challenging to navigate through the complexities involved with qualifying for the tax credit and the necessary documentation. For example, to be eligible, an activity must meet a four-part test. A qualified R&D tax credit expert can help determine which activities qualify and help you with the required documentation.
Find Out if Your Activities Qualify
The R&D tax credit can be a lucrative incentive for innovative businesses. Given the new permanent nature of the federal tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving tax credit opportunities.
Tax Point Advisors, a firm with expertise in working with small and midsize 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.
