The Research and Development Tax Credit:
Claim What You Deserve

Many manufacturers are not aware that federal and state research and development (R&D) tax credit programs exist that may reward their day-to-day efforts aimed at producing a more efficient product.

The R&D tax credit has existed since 1981, however, prior to December 2001, the requirements were difficult to attain. New regulations proposed in late 2001 and ratified in January 2004 have opened the door for eligible taxpayers to “look back” for potential refund claims.

Many companies regard R&D as an activity associated solely with hi-tech, biotech, and pharmaceutical companies. There was some truth to that in the past. However, with the relaxed regulations, the definition of R&D is broader, and in fact, companies in the tooling, mold and die industries are prime candidates for the credit.

Many companies miss out on the credit in areas such as manufacturing, engineering, quality assurance, marketing, purchasing, and information technology. Many firms tend to regard their efforts to make new, lighter, stronger, cheaper, more reliable products, or to design more precise, more economical and more versatile processes as “just doing my job” when, in fact, they have also been performing R&D qualifying activities.

The R&D credit is largely based on an allocation of labor costs attributable to the above-mentioned qualifying activities.

Companies that have qualifying R&D activities are entitled to a 20 percent research tax credit, subject to certain limitations, and companies can obtain the credit for all open tax years.

Manufacturers continually participate in these qualifying activities simply to remain competitive without realizing that their daily operations may also entitle them to tens of thousand of dollars in tax credits.

From Steve Dusablon, Managing Director, Alliant Group LLP, 949-809-2170 www.alliantgroup.com register. For the complete article, click here.