10 August 2023
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What is R&D tax Credit?

The R&D Tax Credit is a government-sponsored tax incentive available to companies that conduct research and development activities in US based manufacturing companies.

Why is the R&D credit useful for my company’s cash flow?

The R&D tax credit increases cash flow, rewards companies that hire employees that focus on technical/engineering activities, reduces NOLs (if applicable), can be carried forward up to 20 years, or the 3 prior years credits – thus, significantly reduce current taxable income.

How does it work?

Research and development include activities that companies undertake to customize, innovate, and introduce new or improved products, processes, and services.  A company can get a Tax Credit of around 10% of their R&D expenses per year.

  • To claim the credit, the taxpayer evaluates and documents their research activities to establish the amount of qualified research expenses (QREs) paid for each qualified research activity (QRAs).
  • Tax form 6765 is the R&D form that is attached to the Federal and State tax returns.

What is an R&D expense?

  • Wages – W-2, Box 1 wages
  • R&D supplies
  • R&D contractor
  • Lease cost of computers

Qualifying R&D Activities

  • Designing and prototyping new types of industrial machines with improved features, efficiency, and capabilities.
  • Creating specialized machines for specific industries, such as automotive, aerospace, or electronics manufacturing.
  • Automate existing processes to reduce production costs via industrial equipment implementation.
  • Develop flexible manufacturing systems that can produce customized products in small batches.
  • Investigating and adopting advanced materials to enhance the durability and performance of machines.
  • Researching methods to allow machines to adapt to different production needs and scenarios.

R&D activities can be carried out within the scope of manufacturer’s internal projects, as well as in specific developments tailored to meet their client demands. In the latter case, particular attention should be given to contracts to ascertain whether the research is funded or not, and to identify who is eligible to claim the Research and Development Tax Credit (RDTC) between the manufacturer and their client.

Why is the Machinery and Equipment Industry concerned?

The Manufacturing Industry employs 12 million people, and supports hundreds of local economies, which represents 11% of the country’s GDP. The investment trends in the sector account for 20% of the nation’s capital investment. Particularly, the Machinery industries provide essential and highly sophisticated technology for many other manufacturing and service industries, including industrial processes and other automation technologies.

More than 1.3 million Americans are employed in the Machinery Manufacturing, counting on tens of thousands of companies manufacture machinery, most small and medium enterprises (SMEs), and the sector also supports the jobs of hundreds of thousands of Americans in a variety of other manufacturing and service industries.

How can we help you?

With our expertise, FI Group specialists can support your company in identifying qualified activities. We specialize in helping companies finance innovation and secure funding for their R&D activities through the comprehensive management of the R&D Tax Credit. We can assist you with:

  • Claiming the RDTC for your internal projects.
  • Conducting funded research analysis for your client’s projects.
  • Collaborating as your partners to facilitate RDTC claims for your clients in instances of funded research. We provide guidance on contract structuring to ensure that the RDTC remains accessible to one of the parties, preventing loss for both you are and your client.
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