The Marine and Boating Industry Keeping Afloat with R&D Tax Credits

The Marine and Boating Industry Keeping Afloat with R&D Tax Credits

Posted by William Mehi on 05.24.23

Americans are taking to the water in record numbers, making the marine and boat manufacturing industry a huge contributor to the U.S. economy. Powerboat sales are estimated to grow 5-7% a year. Recreational boating alone is a 36.7 billion dollar industry in the U.S., which provides approximately 338,526 jobs at 34,833 marine industry businesses across the country. With an industry as old as the marine and boating industry, marine companies rely on innovation to keep their businesses growing and current. Most companies in the marine industry do not realize that their day to day tasks may give them generous tax incentives. Prototyping, creating parts, and even creating entire vessels are just a few of the daily activities that can qualify for research and development tax credits from the IRS. The marine industry employs engineers, mechanics, software developers, communications and navigation specialists to help bring innovation to the industry. These builders, engineers and architects may qualify for R&D tax incentives to cover areas such as employee wages, material costs and payments made to outside consultants for engineering and testing. 

What is the R&D Tax Credit?

The federal government implemented the research and experimentation tax credits in 1981 to create jobs and spur technology in the United States. Known as R&D tax credits, the program was meant to be a temporary measure to give the economy a boost. Subsequent modifications simplified the credit and made it available to a much wider variety of activities and industries. Given the popularity of the R&D tax credit program, many states followed suit by establishing their own programs. Today, more than 40 states offer R&D credits with attractive features and additional advantages.

Environmental concerns as well as the pursuit of enhanced cost effectiveness have encouraged boat owners and operators to explore ways to reduce fuel consumption and lower emissions. Testing to meet compliance regulations and safety requirements as well as any environmental testing may be a daily occurrence that your marine company can be compensated for with R&D tax credits.  Engineers and builders are looking to improve vessel efficiency whether it be through structural measures to the hull form or assessing wind and wave impact to better the product. These everyday experiments and tests can and should be listed as research and development and your marine company should seek the tax relief it deserves.

What Activities Qualify?

To remain competitive in the global marine market, it has become imperative that marine businesses claim the R&D tax credits they have earned. Many factors have to be taken into effect for what is considered qualified activities.

Some activities that can qualify:

  • Designing new manufacturing equipment
  • Improving efficiency in manufacturing operations
  • Alternative material testing
  • Designing, developing and improving parts
  • Designing, constructing and testing product prototypes
  • Conducting tests to maintain quality assurance
  • New parts designs or revisions to improve product performance
  • Testing to meet compliance regulations and safety requirements
  • Efforts to improve environmental safety or worker safety
  • New or improved tooling or equipment
  • Prototyping and three-dimensional modeling
  • Developing environmental consideration for overall operations
  • Optimizing Building methods through pre-process planning
  • Analyzing welding techniques for specific performance requirements
  • Evaluating innovative designs to optimize function and fuel consumption
  • Introduce new control systems
  • Introduce A.I. and robotic systems
  • Evaluating radar components and weather tools
  • Improving communications devices and software
  • Considering alternate propulsion systems

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.

The 4 Part test

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 test batches, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result. 

Watch this video: How to Qualify for R&D Tax Credits: The Four-Part Test

Many of the activities conducted by marine and boat companies qualify for the R&D tax credit, and it’s an industry that can benefit greatly from these tax credits and incentives. Tax Point Advisors currently partners with some of the most forward-thinking companies in the industry already, and we’re eagerly looking to help additional companies take full advantage of the available credits in the most effective way. 

Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and their clients throughout the U.S. To learn more about R&D tax credits from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.

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