2018 has come to a close, and we’ve just rung in the new year, celebrating our most recent 365-day trip around the Sun with our family and friends, party hats, and noise-makers. With the new year, many people engage in retrospection, re-evaluating some life choices and declaring New Year’s resolutions to change an undesired trait or behavior, to accomplish a personal goal, or otherwise improve their life. Diet, exercise, learning a new skill…these are some of the many self-improvement endeavors that we will pursue.
As a manufacturing company, self-improvement as a business is a never-ending goal as you constantly strive to develop new or improved products and processes. To power improvement efforts for your business requires capital for investing in innovation and opportunity. That is why you should resolve this year to speak with a tax consultant about pursuing the Federal Credit for Increasing Research Activities ('The R&D Tax Credit') as a source for funding growth.
Many small and medium-sized manufacturing companies are eligible to reap the benefits of the R&D credit, however, they often make misguided business decisions based on misinformed excuses as to why their business cannot qualify for the R&D credit.
To reach your aspirations this new year and help your manufacturing business achieve success, here are some common excuses to avoid that cause companies to dismiss the chance to substantially save money.
Excuse #1 - My business is too small to qualify
Don’t assume that only large companies stand to gain significant tax savings from corporate tax incentives. Small and medium-sized businesses can also benefit from pursuing tax credits like the R&D credit. In fact, companies that have smaller budgets sometimes see more impactful savings, especially if they have not claimed credits in the past.
Excuse #2 - My company hasn’t invented something new
You don’t have to invent something new or design a new product to qualify for R&D credits. Actually, the most typical manufacturers that use the R&D tax credit are companies that improve or modify an existing product or process.
Excuse #3 - We don’t do scientific research that qualifies
Many manufacturers don’t think they are eligible for the R&D credit because they assume it only applies to research performed by technology or pharmaceutical companies. Truth is, you only need to meet the broad definition of research from a tax perspective to satisfy the legal tests for the R&D tax credit. Much of the work performed by technical personnel in manufacturing, such as design engineers, CAD designers, production supervisors, operation technicians, CNC engineers, and so on, qualifies as research activity.
Excuse #4 - It’s too complicated and not worth the effort
For manufacturers performing qualified research activities, some still do not pursue the R&D tax credit because they fear that the calculation and process are too complicated to justify the effort. Partner with a tax specialist to alleviate any doubts! Let your tax professional do the heavy lifting to identify and substantiate qualifying activities with minimal disruptions to your operations, and secure tax credit amounts that far outweigh the effort.
Excuse #5 - We don’t have the supporting documentation
Often companies think they do not have the documentation needed to substantiate the R&D tax credit claim. In reality, there is no one document that is required to claim the R&D tax credit. For example, machine drawings, while not written specifically for the R&D tax credit, can be used to satisfy one or more of the legal definitions of “research”. And other documentation, like notes, emails, and build sheets, can supplement substantiation requirements for identifying and claiming research expenses.
Excuse #6 – I don’t want the IRS to target us
Some businesses fear that by submitting for tax credits and incentives, an IRS audit becomes more likely. The truth is, Congress created tax incentives to recognize a company’s hard work, innovation, and contributions to the economy. You deserve these rewards! Claiming an eligible research and development credit is not an automatic ‘red flag’ for the IRS. Do not fear applying for them, and for peace-of-mind, partner with a tax consultancy expert that includes audit representation as part of the standard service.
No excuses…Commit to an R&D credit resolution!
It is said that a New Year resolution is bound to be broken. According to Business Insider, 80% of New Year's resolutions fail by February. Don’t let your manufacturing business be part of the 80% who give up before ever really getting started.
The R&D credit is one of the largest incentives available to manufacturers and can possibly save your company hundreds of thousands of dollars annually. Resolve to claim the R&D credits you deserve!
Partner with CTI’s elite tax professionals, allowing our team of attorneys, CPAs, engineers, and scientists with ‘Big 4’ experience to identify which activities are eligible for the credit and what expenses can be used to maximize tax savings for your manufacturing business.