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Research & Development Tax Credit: an often overlooked bonus

Manufacturers frequently overlook one of the most lucrative tax advantages out there – the Research & Development Tax Credit.  Available in many countries, this is intended to promote innovation and growth. In some countries, it is the largest handout of tax credits by national governments, and yet very few small and medium enterprises take advantage of it.

Hire a consultant

The R&D Tax Credit tends to be somewhat complex so many small companies, having looked at the reporting requirements, look no further. This may well be a mistake! There are a number of consultants available who will take on the job of guiding a company through the process of qualifying and applying for the R&D Tax Credit, and they will usually be paid on a percentage basis of the refund achieved. Since this is money the company would have lost in taxes paid, the consultant is essentially working for free for the company.

In general, a consultant or consulting firm is necessary.  While the R&D Tax Credit may be the most lucrative government handout, it is also the most scrutinized by tax auditors, so expert advice is needed.

Many activities are eligible for a tax credit

A much wider range of activities can be claimed as R&D than most companies realize.  Are you tooling up for a new product?  Improving your production line? Making a prototype or mock-up for a new project? Those are all activities that may qualify for an R&D Tax Credit. If your firm is not taking advantage of the R&D Tax Credit you maybe walking away from money that you have left on the table.

In the US tax system, R&D is defined as an activity that results in a new or improved process, function, product, performance, cost reduction, etc., or to eliminate uncertainty in developing or improving a product or experiment or test a design hypothesis, and more.  Almost any manufacturer has a range of activities that can be classed as R&D.

A lot of paperwork

Reporting requirements are very strict and involve a considerable amount of paperwork.  Records need to be kept meticulously, showing which worker worked during which hours on which R&D project, etc. The record keeping puts off some potential recipients of the R&D Tax Credit, but a consultant specialist will help get a company set up with the proper paper trail and keep it up to date.

“Found money” – straight to the bottom line

Remember that the R&D Tax Credit is “found money” that goes straight to the bottom line. Its an opportunity that should not be overlooked.

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