The Research and Development (R&D) tax credit is a powerful incentive that was designed to reward innovation, but “innovation” doesn’t always mean white lab coats and high-tech labs. For manufacturers, it often looks like improving processes, developing new products, or solving production problems.
Many manufacturers are leaving money on the table simply because they don’t realize their day-to-day work may qualify for the federal R&D tax credit.
Why It Matters
The R&D tax credit can offset income taxes or, for eligible small businesses, payroll taxes – freeing up capital for reinvestment in operations, hiring, or further innovation. In a competitive industry where efficiency and cost control are key, this credit can be of significant value for companies with ongoing manufacturing operations.
Common Qualifying Activities for Manufacturers
You might already be doing R&D without realizing it! Activities that often qualify include:
- Developing or improving production processes to increase efficiency or reduce waste.
- Designing and testing new or improved products, components, or tooling.
- Creating prototypes or running pilot programs.
- Automating manual processes with custom machinery or robotics.
- Evaluating and testing materials for better performance or lower cost.
- Developing custom software for internal use (such as inventory systems or process controls).
Real-World Example
A precision machine shop redesigned one of its core product lines to meet new client performance specs. This involved multiple iterations, prototype testing, and changes to machining processes. The time engineers and machinists spent designing, testing, and refining the product qualified for the R&D credit, and the shop was able to include some of their supplies costs in their credit claim as well.
Don’t Miss Out
If you’re a manufacturer engaged in problem-solving, process improvement, or product development, you may be eligible. The R&D tax credit isn’t just for big corporations, and small and mid-sized manufacturers can benefit significantly.
Want to explore how much your business could save? Let’s talk.