Research and development tax credits provide golden, yet often overlooked, opportunities for manufacturers to recoup expenses of new product development, product changes or manufacturing process improvements. Recent changes to tax regulations and legislation have expanded these credits, making it easier for businesses to take advantage of the savings.
This week, I had the pleasure of speaking with Cedar Robinson, a corporate tax consultant with more than 18 years of specialized R&D Tax credit experience. Robinson explained that businesses do not have to be a high-tech research type company to qualify for tax benefits. In fact, qualified research activities often include all phases of product upgrades, new product research and development, and product & manufacturing process upgrades to improve quality, reliability or efficiency. Most manufacturers are continuously improving production processes and efficiency as part of everyday operations and virtually all manufacturers develop new or improved products. As a result, Robinson indicated that nearly all manufacturers are eligible for the R&D Tax credit.
During the last seven years opportunities for manufacturers to claim these credits significantly increased, according to Robinson. He cited the publication of federal regulations in 2004 and subsequent 2009 judicial rulings in favor of manufacturers as major turning points for R&D benefits. These regulations and cases cemented an improved process for manufacturers to document, calculate and claim R&D expenses. In addition the 2007 legislation added the Alternative Simplified Credit calculation which ensures that most manufacturers will typically be able to obtain some good R&D tax credits. The recent 2010 Small Businesses Act greatly increased the number of businesses eligible for research credits in 2010 by allowing the R&D credits to offset alternative minimum tax, which was previously a hurdle for many manufacturers with less than $50 Million in revenue.
The key to taking advantage of R&D credits lies in educating key accounting, engineering, and production team members about what qualifies as a research expense and working with each of those groups to gather and maintain appropriate documentation.
In Robinson’s experience, most companies generally already have the majority of necessary processes in place to properly document eligible expenses. Manufacturers completing research & development usually have process changes and testing results recorded. He said the most effective way for businesses to ensure they meet minimum documentation requirements is by taking it one step further and tracking product changes, including process improvements, in a centralized process, and gathering existing documentation.
Businesses that have never claimed research expenses are often eligible for retroactive credits, as far back as 3 years. In 30 years of R&D tax credit history, there has never been a more opportune time for businesses to take advantage of these benefits.
Together with his partner Bruce Warner, a former IRS R&D credit issue specialist Cedar Robinson co-directs Warner Robinson, LLC. Bruce and Cedar both have over 17 years of experience specializing in assisting manufacturers with compiling R&D documentation, quantifying tax credits, working in conjunction with internal accounting & engineering teams to maximize R&D tax benefits, and working to defend the R&D credits before the IRS..
Interested in learning more about incentives, credits and rebates for manufacturers? Contact Warner Robinson LLC to learn more about R&D Tax credits or subscribe to the UniTherm blog to receive manufacturing news updates.
