Set to expire on Dec. 31, 2012, the research and development tax credit has once again been renewed as a result of the American Taxpayer Relief Act, impacting a wide range of industries, including aerospace, engineering, manufacturing and food processing. This lucrative credit is overlooked by industries outside of manufacturing and software, however, Doeren Mayhew recently helped an architectural firm claim credits of more than $300,000. Could you be missing out on an opportunity to claim such a credit? Read below for more on the incentive and whether you may qualify.

What qualifies? For research to qualify, it must be undertaken to discover information that is technological in nature and intended to be useful in the development of a new or improved business component. That may include research on new products, improvement of existing products, development of more reliable and cost effective processes, and more.

The credit is designed to cover the following three basic categories of expenses:

  1. Wages for employees involved in research activities.
  2. The cost of supplies consumed during the research.
  3. Costs associated with contracting with an outside party to conduct research on your behalf (generally limited to 65 percent of the cost).

How much is the credit? The R&D tax credit is not just a tax deduction; it’s an actual dollar-for-dollar credit against taxes owed or taxes paid. There are two options available to calculate the R&D tax credit:

  1. The regular credit calculation uses current-year qualified research expenses and complex base amounts, including prior-year research expenditures and gross receipts.
  2. The Alternative Simplified Credit (ASC) gives companies that are unable to generate a credit under the regular method a chance to cash in on their research and development expenses, as the ASC does not include gross receipts.

Sample savings Doeren Mayhew clients have received include:

  • More than $800,000 in R&D tax credits for a design and engineering company with $60 million in sales.
  • More than $475,000 in R&D tax credits for a consumer electronics company with $190 million in sales.
  • More than $2 million in R&D tax credits for an aerospace supplier with $200 million in sales.

When should you consider an R&D tax study? Identifying qualified research expenditures generally requires an in-depth discussion about a company. However, the following activities likely fall under the category of qualifying:

  • Manufacturing products
  • Developing and/or improving new products, processes or formulas
  • Designing tools, jigs, molds and dies
  • Creating more reliable products, processes or formulas
  • Improving/building manufacturing facilities
  • Developing prototypes or models
  • Testing new concepts/sourcing new materials
  • And more

To learn more about the credit or whether you qualify, contact our dedicated Tax Incentives Group, with CPAs in Troy, Mich., and Houston, Texas.