Common Industries Eligible for Federal R&D Tax Credits

What if your small business could save thousands of dollars annually in taxes—all thanks to work you’re already doing? The federal research and development (R&D) tax credit makes this possible for companies of all shapes and sizes. Each year the U.S. government provides billions of dollars to innovative businesses for developing and improving technologies, products, and processes.

The R&D tax credit was originally introduced in the Economic Recovery Tax Act of 1981 as a temporary incentive to encourage additional research spending. The passage of the Protecting Americans from Tax Hikes (PATH) Act in 2015 permanently extended the R&D tax credit while expanding its benefits to startups and small businesses. Despite this, many growing businesses continue to miss out. Some perceive it to be too complex or costly, while others mistakenly believe they don’t qualify. To set the record straight and learn more about common R&D tax credit myths, check out our recent blog on the topic.

Businesses in industries that usually come to mind when thinking about eligibility for the R&D tax credit include those in pharmaceuticals, automotive manufacturing, and software development, just to name a few. In reality, businesses in many other sectors are often able to claim this tax credit as well. Categories such as cosmetics, apparel, telecommunications, or even food and beverage may have qualifying work. Below we highlight some of those industries and examples of R&D activities that may qualify for the tax credit.

Architecture

• Developing new or improved designs
• Evaluating alternative designs to meet or overcome complex client requirements, site conditions, or building codes
• Evaluating alternative designs and materials for structural or energy optimization, and/or to achieve LEED certification
• Determining or testing optimal designs for lighting, acoustical, or visual qualities within a structure
• Using building information modeling and computational analysis tools to assess designs for various functional requirements
• Developing schematic designs, site plans, and elevation drawings
• Designing areas for building systems
• Developing environmentally friendly buildings

Construction

• Design and development of electrical, plumbing, HVAC, and energy-efficient systems
• Design and development of buildings, structures, and related components
• Design and development of temporary systems such as shoring, falsework, and dewatering systems
• Development of new or improved processes, methods, and techniques used in the construction process
• Pre-construction planning, including structure, facility, or plant production design
• Development or improvement of equipment
• BIM modeling for design or sub-system coordination
• Improvements to a building’s ability to withstand seismic events or extreme weather

Food & Beverage

• Designing and developing new or improved processes to maintain quality and safety, meet regulations, reduce costs, or improve consistency
• Testing of product ingredient mixtures for desired flavor or aroma
• Designing and developing new products to make traditional products healthier
• Developing or redesigning packaging to improve shelf life, sustainability, or durability
• Developing new processes and techniques for the production of new food products, including mixing times, batching sequences, and cooking temperatures and durations
• Development of new or improved preservative chemicals
• Improving existing production processes to improve efficiency and reduce waste, or to convert waste into energy

Dentistry

• 3D printing
• Development of Platelet Rich Plasma/Platelet Rich Fibrin (PRP/PRF) treatment
• Utilizing an on-site milling machine or in-house lab
• Utilizing and making improvements to technologies
• Creating new or improved processes, techniques, or methods
• Creating and testing prototypes
• Experimenting with alternative materials or attachment systems
• Intra-oral scanning technology
• Use of technology to accelerate time of treatment and fit of custom orthotics/prosthetics
• Nylon appliance development

Agriculture

• Experimenting with or developing new fertilizers
• Hybridizing or developing new strains of crops, plants, or livestock, including developing new gene transfer techniques
• Developing new feeds or feeding techniques for livestock
• Implementing new ways to protect crops or livestock from disease
• Improving harvesting practices, such as automating processes
• Implementing precision farming techniques in attempt to increase yield and/or production efficiency
• Developing and implementing new irrigation systems
• Implementing new equipment to improve harvest cycle times
• Working to optimize the treatment and management of farm wastes in an energy efficient manner

Believe it or not, this only scratches the surface of the types of industries that may take advantage of the federal R&D tax credit. If you’re ready to explore the possibilities, TriNet Clarus R+D has put together a comprehensive, non-exhaustive list of industries to get you started. Still unsure about the R&D tax credit process or how your business might qualify? Our experts are here to help, so schedule a demo today!

© 2024 TriNet Group, Inc. All rights reserved. TriNet Clarus R+D does not provide legal, tax or accounting advice. The information herein and the opinions expressed may not apply to your company or scenario, so you should consult with your own advisors on how best to proceed.