Manufacturing Company Receives Over $2 Million in R&D Tax Credits
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Benefit Illustration for R & D Tax Credits
A manufacturing company in Texas had invested in efforts to reduce waste and make its manufacturing processes more efficient. As part of its regular business operations, the company had also developed several new or improved products, such as eco-friendly versions of existing products.
Between the costs of materials and wages paid to the employees who designed and implemented these processes and products, the company had incurred staggering expenses and was facing the dilemma of how to boost net profits while maintaining high quality standards. Having heard that it may be able to significantly reduce its tax burden through tax incentives, the manufacturing company sought a partner to guide it through the process of claiming these incentives and taking the necessary steps to maximize savings.
Challenges
As the manufacturing company developed new and improved products and processes, it faced the following challenges:
- Determining what the optimal designs would be
- Determining which materials to use
- Evaluating and testing prototypes to ensure that they were free of defects
- Reviewing records and preparing the documentation needed to claim tax savings
Solutions to Minimize Tax through R & D Tax Credits
Capital Review Group (CRG) worked with the manufacturing company to identify available tax incentives that would improve net profits through a minimized tax burden. CRG determined that the company may be eligible for the Research and Development (R&D) Tax Credit, which rewards businesses in a variety of industries—including manufacturing—with a dollar-for-dollar credit.
To qualify for the R&D Credit, a taxpayer must:
- Intend to create a new or improved product, process, or software
- Seek to eliminate uncertainty regarding the activity’s capability, cost, design, or process.
- Engage in a process of experimentation—including testing, modeling, or trial and error—designed to resolve the uncertainties.
- Rely on engineering, physics, biology, or computer science in completing the process of experimentation.
CRG found that the manufacturing company’s activities of developing new and improved products and streamlining manufacturing processes satisfied this four-part test and therefore constituted qualified research under the R&D Credit. CRG assisted the company with reviewing records of these activities and preparing the necessary documentation, such as payroll reports and project lists.
Based on the manufacturing company’s qualifying R&D activities and a multi-year federal and state R&D Credit study conducted by CRG, the manufacturing company received a $1.4 million credit for 2013 and 2014 and a $683,000 credit in 2015. With a total of over $2 million in tax savings, the manufacturing company was able to offset the costs of its R&D activities and reinvest in future innovation.
To discover tax savings opportunities for your projects contact Capital Review Group today at 877-666-5539.