Posted by William Mehi on 07.12.23

Cabinet and furniture manufacturers can and should maximize R&D tax credits offered by the Federal government. In the past decade, building and design trends are beginning to not only move towards multi function, but also minimalizing materials as well as space. For example “Tiny Houses” are trending all over the United States right now. Americans are embracing the concept of reducing their global impact as well as trying to live on smaller scales with multifunctional storage and furniture. Most furniture and cabinetry companies don’t realize the R&D tax credit applies to them, but with these growing movements in building, manufactures now have to start changing their processes and products to compete with the thriving market. There are many qualified activities cabinet and furniture businesses may not be aware of and eligibility isn’t limited to just the manufacturing area. If you implement a new system, build a new product line or develop a new formula or software, your company can take advantage of the tax credits, too.

The cabinetry and furniture industry is ripe with opportunities to claim Research and Development (R&D) tax credits. Qualifying expenses can include anything a company does to make its products better, faster or cheaper. For manufacturers, this could be everything from labor and travel, to supplies and materials that go into trial-and-error processes, new solutions, parts or products. Employees or contractors that are hired to help in this process based on their use of hard sciences, such as engineering or computer sciences, may have salaries that can also qualify for the tax credits. 

Read our blog regarding how the R&D tax credits can be used to offset payroll:

http://taxpointadvisors.com/blog/view/rd-tax-credits-can-offset-payroll-liability-for-your-small-business-or-startup

The R&D Tax Credit

The R&D tax credit was instituted by the federal government to stimulate the United States’ economy through innovation. The idea being that; by providing companies that were ready and willing to invest in improving their processes and developing new products with tax incentives, technology would progress and the nation would advance economically. In 2015, after many extensions on the temporary bills that would become the R&D credit, it was made permanent by the U.S. Congress and is now a dollar-for-dollar benefit against tax. 

Which Activities Qualify?

Many activities in the furniture and cabinetry industry will qualify for the R&D tax credits, including:

• Designing and developing new or improved products or processes 
• Streamlining manufacturing processes through automation 
• Evaluating alternative designs to meet or overcome complex client requirements
• Developing prototypes and samples 
• Evaluating alternative designs and materials to optimize for energy efficiency and/or achieve LEED certification
• Researching new equipment to improve the process
• Testing coatings, fabrics, finishes for strength and durability 
• Developing and implementing new and improved safety enhancements 
• Cost reducing activities 
• New packaging to improve stack ability, weight and durability 
• Environmental effects and longevity 
• Integrating new materials to improve performance
• Researching with respect to materials

Find Out If Your Business Qualifies For These Tax Saving Credits

The activities and associated expenditures (derived mostly from employee time, consultant expenses and related R&D supplies) of a company can qualify for the R&D tax credit if the activities meet the requirements of the four part test established by the IRS:

1. Qualified Purpose - The purpose of the research must be to create a new or improved product, process, or formulation, resulting in increased performance, function, reliability or quality.
2. Technological in Nature – The research must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
3. Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology. 
4. Process of Experimentation – Experimentation can be demonstrated through prototypes, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.

Opportunities to claim the Research and Development (R&D) tax credits for the cabinetry and furniture industry are abundant. Developing and implementing new or improved safety enhancements and creating more efficient, cost-effective manufacturing techniques are just a few activities performed that can qualify for the R&D credit. Get the R&D tax credits your business deserves for your invested time, effort and resources.

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

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, read our e-book: The Business Owner's Guide to R&D Tax Credits.You may also contact us at (800) 260-4138, or please leave us a message below.