You’re in an industry that’s moving a mile a minute. There are only so many hours in the day and there’s always more to get checked off the list, we get it.

In the midst of the COVID-19 crisis, utilizing resources to fund on-going operations and keep employees on the payroll is key. We know your time is valuable and you only have so many spare minutes to read newsletters. But before you jump back into your day: there’s free money your business may be eligible for and missing out on. Do we have your attention? We’re talking R&D credits. While this permanent tax credit remains the most powerful incentive available to American businesses, less than 5% of eligible businesses claim the benefits. Are you a part of the 95% missing out? To understand if you are missing out on a huge savings opportunity, consider these nine manufacturing activities that can qualify for the R&D Tax Credit:

1. Sales Time (determining requirements, quoting, etc.)
2. Design Meetings (collaboration among staff, etc.)
3. Flat Blank Layouts (design modifications, etc.)
4. Tool Making (design, build, tryout, etc.)
5. Engineering Process (new equipment, shop redesign, etc.)
6. Proof of Concept (process documentation, etc.)
7. Trial Production Run (first run of a product, etc.)
8. Quality Approval (PPAP, ISIR, etc.)
9. Shipping (package design, etc.)

Let’s dive into a fifteen second history lesson to learn the backstory here: the R&D credit was established back in the 1980’s because Congress wanted to encourage domestic companies to create innovations to keep the U.S. competitive industry leaders. Due to a 2015 provision, more companies than ever are able to benefit from the R&D tax credit for research activities they’re already doing.

Why is the R&D Tax Credit so underutilized?

Many companies self-censor, or have applied for the R&D tax credit prior to the change in eligibility requirements and don’t realize they qualify. Every year thousands of small and mid-sized businesses nationwide miss out on these huge savings, leaving billions in federal funding untouched. Manufacturing companies often miss out on claiming R&D credits simply because they don’t recognize their work as being innovative. R&D credits are available for manufacturers who are taking steps to improve the manufacturing process by making it more advanced, environmentally friendly, and efficient.

There is an actual four-part test to see if your activities qualify for this credit. The IRS explains this in great detail but let’s break it down:

• Permitted Purpose: is this going to be used in the business?
• Technological in Nature: there has to be some “hard science” in this activity
• Process Experimentation: testing, trial and error of the process
• Elimination of Uncertainty: activities must attempt to eliminate uncertainty

The savings can be significant.

Startups and small businesses may qualify for up to $1.25 million (or $250,000 each year for up to five years) of the federal R&D Tax Credit to offset the Federal Insurance Contributions Act (FICA) portion of their annual payroll taxes. On average studies find $20,000 to $40,000 of savings per every million dollars in total company payroll. Plus, this credit is recurring. For as long as a company continues to produce products, this credit can be taken every tax year. There is absolutely nothing to lose by exploring the R&D credit for your company. Numerous manufacturers have been able to grow their business, maintain their competitive edge in the industry, add new jobs and prevent lay-offs because they looked into the R&D tax credit and discovered they qualified for a substantial return. Call an RBT team member today to learn more about whether or not you qualify.