Posted by William Mehi on 07.20.23

In the past decade, solar energy has been one of the fastest growing sources of renewable energy. The U.S. solar industry generated an estimated $154 billion in economic activity in 2016 alone. Technological innovation, cost efficiencies, and increasing consumer demand are driving the force behind renewable energy popularity and the solar technology advancement. Phone chargers, solar powered security lighting, solar wearable technology, and billboards lighting up our highways are some solar trends emerging across the United States. Prototyping, the development of new products, or experimenting with new materials, are just a few ways solar companies are pushing technology boundaries on a daily basis.  There is a wide variety of research and development involved in advancing the science responsible for energy production, all of which could qualify for substantial tax credits. For many solar start up companies, research and development (R&D) tax credits could offer a helping hand when they need it most.

Solar technology companies are an integral part of the renewable energy industry and often do not realize that their day to day activities could be eligible for federal and some state R&D tax credits. Companies are eligible for the research and development (R&D) tax credits for activities relating to creating new products and/or improving existing processes. In order to remain competitive in the market, companies are continuously researching and developing ways to produce better quality products for less money. Some of these activities may allow companies to enhance the yield of their solar panels, decrease losses in regulators and converters, increase the efficiency of monitoring tools and better manage storage technologies, such as battery packs, for off-grid applications. Solar technologies are evolving rapidly. Companies that are involved in the development, manufacturing, and installation of solar technologies can offset high R&D costs by utilizing the federal R&D tax credit. Many businesses incorporate the credit into their business model and use the savings as a way to fund future research and process improvement.

R&D Tax Credit

The federal government implemented the Research and Experimentation tax credit 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.

After many extensions, the tax credit was made permanent by Congress in 2015 to allow companies that create innovative products and processes to receive tax credits for the qualified activities they conduct.  The very nature of the work performed by the renewable energy industry is innovative especially in the solar area. Solar technology producers may qualify for R&D incentives to cover eligible costs including employee wages, cost of supplies, cost of testing, and contract research expenses.

Which Activities Qualify?

The following are examples of qualifying solar technology activities:

• Exploring means, methods and construction techniques
• Increasing the efficiency of conversion to other forms while also reducing the cost
• Storing energy more efficiently and reducing the costs
• Finding newer ways to convert solar energy to useful forms
• Researching cells to improve their efficiency and stability over time
• Developing  new materials for electrical insulation
• LEED or energy efficient designs
• Developing and improving construction equipment
• Utilizing BIM (Building Information Modeling)
• Conducting voltage drop calculations
• Copper or Aluminum wire determinations
• Performing services design and testing
• Increasing the efficiency of monitoring tools
• Performing conduit wire overheating calculations
• Value engineering
• Conducting Request for Information Process (RFI’s)
• Utilizing BIM modeling for sub-system coordination

Businesses conducting solar research, such as the activities above, may qualify for and benefit from R&D tax credits.  The activities and associated expenditures of a company can qualify for the R&D tax credit if the activities meet 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. 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.
4. Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology. 

The proper identification, quantification, and documentation for qualifying research activities and associated expenditures towards the R&D tax credit requires a thorough review of a company’s personnel and projects undertaken.  Companies engaging in the renewable energy industry, such as solar technology companies, often expend time and resources on qualified research that enable taking advantage of the R&D tax credit.

How Do I Apply?

R&D tax credit eligibility requirements are clearly defined—companies seeking to take advantage of the credit must be prepared to identify, document and support their qualifying activities. At Tax Point Advisors, we understand that many business owners feel intimidated by the process. We can help. 

Tax Point Advisors has expertise in working with companies in the solar technology industry that qualify for R&D tax benefits. With experts placed nationally, we conduct local, thorough on-site assessments for every study—then, we write a bullet-proof, audit-defensible study report.

Find Out if Your Activities Qualify

The R&D tax credit can be a lucrative incentive for businesses in the solar technology industry. 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.

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 reach us at 800-260-4138 or leave us a message below.