United States

Ten R&D tax credit myths that could cost your industrial products company


In 2010, manufacturing companies claimed more than $5.5 billion in federal research and development (R&D) tax credits. While that may sound like a substantial government subsidy of R&D, the research credit was in fact significantly underclaimed —fewer than 6,000 manufacturing entities claimed the credit nationwide.

Many manufacturers are under the mistaken impression that their R&D activities do not qualify for research tax credits. If your company designs, develops or improves products, processes or software, it may be eligible. The most overlooked areas are those associated with process and line improvement activities. In addition, if your company applied for or considered applying for a patent, your company is even more likely to be eligible for the credit.

An intriguing new development currently under discussion in Congress is an amendment to the federal R&D credit that would expand the credit to qualifying small businesses that do not have taxable income, thereby allowing these companies to claim the credit against payroll taxes. The maximum benefit would be capped at $250,000 and only be available to companies less than five years old with less than $5 million in gross receipts.

By claiming R&D credits, manufacturers can obtain thousands of dollars for activities they already perform. See myths and facts about the research credit that could be costing you.