R&D tax credits for manufacturing & processing improvements.

• Author: Rood, Clair A. Jr.
• Position: Voices

Making improvements to a production or manufacturing process, designing a new product, or other forms of Research & Development (R&D) will often result in increased operating costs. However, your investment in R&D may have also made your company eligible for significant tax and cash flow benefits.

R&D tax credits can increase cash flow and improve a business' bottom line by as much as one hundred thousand dollars or more. In practical terms, this means your business can recoup a portion of what it has incurred to fund research and development activities. This tax credit takes the form of either refunds of previous taxes paid or a reduction in current and future tax bills. You should also analyze R&D tax credit positions for the purpose of FIN 48 implementation. In essence, the Federal government wants to partially subsidize your business activities in order to stimulate economic growth and innovation.

To take advantage of tax breaks available to you for money invested in R&D, you need to apply the rules supporting this credit to both product and process activities and file the appropriate paperwork.

There are a great deal of variables involved in the development, manufacturing and processing of products on a large scale. Initiatives that may qualify as R&D include:

Developing packaging to improve product quality

Developing formulas

Developing cost/energy efficient manufacturing processes

Improving nutritional content and texture of food products

Developing processes that convert waste to energy

Prototype modeling

Testing / confirming new designs, machine procedures, computer controls

Optimization of the tooling process

Designing and evaluating process alternatives

Increasing operating and economic efficiencies

Reducing labor costs

Achieving compliance with changing emissions laws and regulations

Implementing automated processes

The Impacts of Tax Credits for Today's Businesses

In an ever-changing global economy, Congress and many state governments have passed incentive programs such the R&D tax credit in an attempt to assist U.S. businesses in remaining strong and ahead of the global technological curve. However, many believe that Congress has not done enough. Approximately 25 countries around the world offer various incentives to promote innovation within their country. These incentives take various forms which can include credits, deductions, subsidies, tax exemptions and reduced tax rates for qualifying activities.

Some countries provide...