Closed facilities. Layoffs. The uncertainty of a global pandemic.
So long, 2020! We won’t miss you.
Yes, COVID-19 forced most U.S. industrial manufacturers to face challenges they never imagined. And, no surprise, about 80% of manufacturers say the pandemic had a financial impact on their business, according to a survey by the National Association of Manufacturers (NAM).
And even though emerging vaccines are an incredible bright spot, the COVID-19 pandemic continues to reduce demand, production, and revenues. Plus, many manufacturers still face cash-flow challenges.
Year’s end is a great time to look for opportunities. Maybe it’s profit margin improvement, or introducing more automation into your processes, or simply looking for a source of critical cash when it’s needed most.
If you’re searching for capital — that many manufacturers desperately need — consider claiming the Research and Development (R&D) Tax Credit. It’s based on business activities that you likely do every single day and may not even know it: research and development.
What? You Don’t Think You Do R&D?
We bet you do!
The R&D your company does may not be performed in lab coats or even done to create new products, yet you probably modified a product or improved an existing process, and those may qualify for the tax credit.
For example, these activities are done by many manufacturers nearly every day:
1. Sales Time (establishing requirements, quoting)
2. Design Meetings (staff collaboration)
3. Flat Blank Layouts (modifications to design)
4. Tool Making (designing, building)
5. Engineering Process (equipment and shop changes)
6. Proof of Concept (documentation of processes)
7. Trial Production Run (product first run)
8. Quality Approval (PPAP, ISIR)
9. Shipping (design of packaging)
The Secure Way to Begin 2021
Manufacturers’ daily demands are stressful, and they’ve intensified so much this past year. Of course, production is always top of mind, so R&D Tax Credits are likely not a number one priority.
Yet, the possible benefits of claiming the R&D Tax Credit are huge. Some manufacturers save hundreds of thousands of dollars (or more) a year. Especially during recent economic challenges, claiming the R&D Tax Credit is a secure, proven opportunity that many companies are taking advantage of right now. It’s a great way to generate needed capital, and reduce past, current, and future years’ tax liabilities.
This is a great opportunity to reinvest your tax savings back into the business to grow faster, increase profitability, and be more competitive.
The Smart Way to Claim the R&D Tax Credit
CPAs can be incredibly beneficial for manufacturers, and claiming the R&D Tax Credit may sound like a CPA issue. After all, they’ve passed the CPA exam and fulfilled state education and work requirements. The problem is that CPAs are usually not knowledgeable when it comes to the R&D Tax Credit, and you can’t blame them.
The R&D Tax Credit has many subtleties and requires unique skills. CPAs are rightly focused on their core competencies, which is their main responsibility. A specialized firm, however, one that knows your industry and details of the R&D Tax Credit, works with a business (and its CPA) to maximize the credit for current and prior years.
And if you’re wondering if claiming the R&D Tax Credit could increase the risk of an audit, read this article. Your tax credit specialist should back up every claimed dollar.
The market size of manufacturing in the U.S. has declined on average 3.4% per year between 2015 and 2020. So, no matter how long the COVID-19 recovery lasts, the pressure will remain on manufacturers going forward. That’s why claiming the R&D Tax Credit now (and in future years) is so important.
Wouldn’t it be nice to have additional capital to reinvest back into your business? Would some new automation help increase efficiencies? What value could a new engineer provide? What about accelerating your sales and marketing spend?
When it comes to a 2020 bailout for manufacturers, this may be as good as it gets. Plus, remember that beyond claiming qualifying R&D activities for 2020, you can look back (up to three years) to amend federal tax and state returns that were previously filed.
We’re doing whatever we can to help you protect your business, increase profitability, and keep growing in 2021. We also developed a 9-point checklist loaded with process improvement insights. Click the link below to get your copy!