LGT's Profit Sense

As a business owner, you understand the importance of continuous investment in your manufacturing business. But, as the manufacturing landscape becomes increasingly competitive and globally inclusive, you may ask yourself: “Where can I find the extra capital I need to drive my business forward?” One relatively straightforward way to do this is to utilize the research and development (R&D) tax credit, a dollar-for-dollar tax credit that may be applied against taxes for the generating business.

Less than one-third of eligible companies realize they qualify for the R&D tax credit. For federal purposes, the R&D credit allows qualifying taxpayers to receive up to 14% of qualified research expenditures (QREs), such as in-house research expenses and contract research expenses. QREs can come from a wide variety of expenses but generally will include wages paid to qualifying employees and associated expenses used to develop a new product or process. Examples of manufacturing activities that may qualify include:

• Designing manufacturing equipment
• Optimizing manufacturing processes
• Designing and developing tooling and equipment
• Designing and testing prototypes

In addition to federal R&D credits, more than 30 states offer some version of an R&D credit.  Planning accordingly can allow your business to reap twice the rewards on an investment you’re already making. Most states offer credits ranging from 2% to 6%, potentially allowing your business to return 6% to 14% of your original investment.

Need help creating an R&D tax credit survey to help determine which of your manufacturing activities qualify?

Please contact Swarup Koirala in our tax department at skoirala@lgt-cpa.com.