Medical Device Manufacturing Activities Qualify for Valuable R&D Tax Credits

Medical Device Manufacturing Activities Qualify for Valuable R&D Tax Credits

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:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

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.

Request a free assessment to determine qualifying R&D tax credit eligibility.

Examples of medical equipment innovations eligible for R&D tax credits include the following:

  • Developing engineering drawings and specifications
  • Performing CAD modeling
  • Designing new and improved wireless, Bluetooth, RFID, and other networking devices
  • Developing second-generation or improved products
  • Tooling and equipment fixture design and development
  • Conducting new product development and design
  • Developing unique computer numerical control programs
  • Developing a high-volume packaging process for use with a sterilized medical product
  • Designing and developing a storage case for use in sterilizing and storing a set of surgical tools
  • Implementing factory automation and other automated efficiency improvements including robotic automation
  • Designing and developing a prototype device for gathering a specific body fluid
  • Developing microprocessor software code for the operation of a new infant heart-rate monitor
  • Designing innovative programmable logic controllers
  • Developing equipment that satisfies increasing regulatory requirements
  • Programming software source code for firmware
  • Compiling and testing source code for firmware
  • Conducting unit, integration, functional, and performance testing
  • Conducting clinical tests to satisfy government regulatory requirements prior to commercialization
  • Conducting tests to satisfy foreign regulatory requirements
  • Development of new assays and testing methods/protocols
  • Generating prototypes and first articles of new products for testing and validation
  • Implementing automation processes or robotics
  • Designing electrical equipment

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.

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