The Tax Cuts and Jobs Act (aka “Tax Reform”) is projected to save manufacturers about $261 billion over the next 10 years according to a report from the Penn Wharton Budget Model. More cash in the pockets of owners and operators means more investment in equipment and workforce.
While the Tax Cuts and Jobs Act did not alter the definitions or calculations surrounding the Research and Development (R&D) tax credit (under IRC 41), it did effectively reduce the annual dollar value of the credit as a result of the decrease in tax rates. We find that many business owners in the community continue to have incorrect assumptions regarding the R&D tax credit.
- The R&D credit is only for companies that invent something brand new
No, it is most typically used by companies that are improving or modifying an existing product or process. Something that makes a product cleaner, quicker, greener, cheaper, etc.
- The R&D credit is only for companies with science labs or testing facilities
Wrong, obviously these types of companies usually qualify, but the credit is about encouraging applied science; such as solving a customer’s problem or a production issue using known scientific principles.
- The R&D credit isn’t for companies in my industry
Wrong, there are several eligible activities that qualify including casting, plating, stamping, molding, plastics, modeling, etc. 2011 changes in the regulations surrounding the credit significantly expanded what constitutes research and development type activities.
- The R&D credit is only for the big companies
No, this is available to companies of all shapes and sizes and since 60-80% of new jobs come from small to midsized companies, these are the companies that should be utilizing credits like R&D. Also, the R&D credit became more impactful with the changes to Alternative Minimum Tax due to Tax Reform.
- The R&D credit doesn’t benefit my state taxes
Not true, almost all the states have a R&D tax credit and the states without credits are constantly looking to create one.
- The R&D credit won’t help my bottom line
Incorrect, the tax credit was created with the manufacturing industry in mind to find tax savings and innovation incentives for their businesses.
- The R&D credit is too good to be true
Wrong, the credit has been part of the Internal Revenue Code since 1981 and it has been widely recognized and utilized by a wide range and number of businesses every year.
- The R&D credit could go away with tax reform
No, the R&D tax credit has survived several different administrations for decades now. It was unaffected by the Tax Cuts and Jobs Act passed in December 2017; it is still extremely advantageous for companies to take this credit.
Apple Growth Partners is experienced with identifying R&D eligible activities and calculating the credit. We also foster relationship with several consulting firms with additional specialized knowledge in this area. We would encourage you to take another look at the activities in your business, or activities you are contemplating exploring, as these could be eligible for this important tax credit. Our team members are glad to assist with an initial conversation.