Posted by Jeffrey Feingold on 06.08.22
Many medical equipment manufacturing companies are unaware that the government offers generous research and development (R&D) tax credits. Other companies are aware of the R&D tax credit, but fail to take full advantage due to misconceptions about the types of research and development activities that qualify. The fact is that a broad range of common medical equipment industry practices will qualify for the credit under the Internal Revenue Code’s definition of R&D. Research and development is not limited to the work of dedicated scientists. Equipment engineers, technologists, designers, and machinists often spend a substantial portion of their time developing superior designs and manufacturing practices in an effort to remain competitive. This continuous evolution of technology provides ample opportunities for companies to take advantage of these tax credits. The manufacturing of new ultrasound technology, EKG technology, photo acoustics, portable medical devices and electronics, or smart textiles with statistic reading technology are just some of the many processes eligible for federal and state R&D tax credits.
If your company operates in the medical equipment manufacturing industry, there is a strong chance that you would benefit from an R&D tax credit study.
The Research & Development Tax Credit:
Companies in various industries, including medical device manufacturers have been taking advantage of the federal Research and Development (R&D) tax credit since 1981. Manufacturers can receive a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
Eligible costs include employee wages, cost of supplies, cost of testing and costs associated with developing a patent. On December 18, 2015, President Obama signed the bill making the R&D tax credit permanent. A company can also claim the credit if the qualified R&D activity was completed by outside contractors and should also take a look at the supply costs associated with their activities. These expenditures (QREs) could boost the credit.
Examples of medical equipment innovations eligible for R&D tax credits include the following:
One of the biggest breakthroughs in the medical equipment manufacturing industry in recent years is the use of 3D printers. 3D printers are now being used to develop the next generation of life-changing medical devices. Due to technological innovation in this field, it’s now possible to print medical devices that feature complex geometries, which allows devices to be customized to meet an individual’s needs. The unique capabilities of 3D printing also support the integration of new technologies, as printed devices are able to outperform medical devices fabricated using conventional methodologies.
The medical device manufacturing industry is teeming with innovation. This innovation stems from the R&D efforts of the equipment manufacturers that supply the medical industry with a never-ending stream of products. Essentially, every device manufacturer is engaged in R&D Tax Credit eligible activities. This means both large scale and small scale manufacturers should claim the credit. Even if the manufacturer is not developing state-of-the-art electronic equipment or pushing the boundaries of efficiency, they should still apply for the R&D tax credit. The cost of technical labor hours, testing, materials used up during the development of prototypes, and even R&D contractor expenses can be utilized to obtain a substantial tax credit.
Tax Point Advisors can examine all your company’s activities and determine which areas are eligible to take advantage of current R&D tax credit rules and regulations. Tax Point Advisors helps you identify qualified R&D activities—including those that can be expensed immediately—and assemble documentation to defend your claim based on our extensive knowledge of the law and your industry. For more information, call us at (800) 260-4138, or please leave us a message below.