Posted by Jeffrey Feingold on 11.22.24
Contrary to popular belief, a company does not have to manufacture an end product to qualify for tax incentives. Companies in the metal fabrication industry develop significant research and development (R&D) processes and process systems—activities that could qualify for valuable federal and state R&D tax credits.
The federal government implemented the Research and Experimentation tax credits in 1981 to create jobs and spur technology in the U.S. Known as R&D tax credits, the credit was made permanent with the Protecting Americans from Tax Hikes (PATH) Act of 2015. The majority of states also offer R&D credit programs.
Qualifying Activities
Despite its name, the R&D tax credit program includes far more activities than research, patents and laboratory work in high-tech, medical and scientific industries. Many metal fabricators don’t have an R&D department, and they don’t consider improvements they are making to remain competitive in their industry as R&D. However, when they use innovative methods to preform, machine and finish metal components, they may be improving engineering practices and introducing new concepts to the fabrication process, both of which are eligible activities for the tax credit.
The R&D credit applies to those who improve the metal fabrication process by making it more advanced, efficient and environmentally friendly. The credit is also intended for activities related to process design and development. Examples include new techniques, formulas, processes, software, and the use of innovative materials to create more reliable, energy-efficient products or processes.
Examples of metal fabrication activities that may qualify for R&D tax credits include:
Four-Part Test for Eligibility
R&D tax credit eligibility largely depends on whether the work you are conducting meets the criteria established by the IRS in its four-part test:
Your accountant or qualified R&D tax credit expert can easily help you determine whether your metal fabricating and activities meet the criteria of the test by conducting a tax credit study.
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.