Greater R&D Tax Credit Opportunities For Manufacturers

The Research and Development (R&D) tax credit has been extended retroactively for expenses paid or incurred during 2014, creating many new opportunities for manufacturers. The most recent IRS data shows that manufacturing companies claimed nearly $6 billion in federal R&D credits in 2011, accounting for over 64% of the $9.2 billion in total federal R&D credits claimed that year.  R&D Tax Credit Overview Manufacturing companies attempting to develop new or improved products, processes, or software are eligible for federal and state R&D tax credits. These credits can equal up to 15 percent or more of qualified spending costs, i.e., taxable wages, supply expenses, and a percentage of contract research expenses related to research.  Dollar-for-dollar reductions in tax liability, these credits allow manufacturers of all sizes to reduce their effective tax rate as well as increase their cash flow, earnings per share, and return on investment.  Eligible activities include attempting to develop or improve products, manufacturing equipment, prototypes, new materials, environmental impact, automation opportunities, lean manufacturing, and software.  New Regulations Make Software Investments Easier to Claim On January 16, 2015, the IRS proposed taxpayer-friendly regulations concerning activities related to computer software developed primarily for a company’s internal use. Before the regulations, activities to develop or improve such software had to meet higher standards in order to qualify. Now, the regulations narrow the definition of internal use software (“IUS”), broadening the range of software development expenditures eligible for the credit. Under the new regulation, IUS refers to software developed to perform back-office functions across almost every business performs, regardless of industry, such as financial management, human-resource management, and support services. A breakthrough for manufacturers and other companies alike is that software won’t be treated as IUS if it is developed to either: be commercially sold, leased, licensed, or otherwise marketed to […]