It's January, and now is a good time to begin documenting your R&D activities for 2016. You may recall that the R&D Tax Credit was recently made permanent—one of the better "gifts" a bi-partisan Congress has given manufacturing, as I recently wrote. In a recent webinar sponsored by SPI: The Plastics Industry Trade Association (Washington, DC) and Black Line Group (Plymouth, MN), a company specializing in R&D tax credit services for small to mid-sized manufacturing companies, Black Line's Scott Schmidt noted the difference between a "tax credit" and a "tax deduction."
A tax credit is a "dollar-for-dollar" reduction in your tax bill. This means that it's "cash to the bottom line of your company," said Schmidt. "If you've not claimed an R&D credit in the past, you can go back and claim past years (be sure you have the necessary documentation) and into the future. It's the gift that keeps on giving."
If you think R&D is only done in a laboratory by scientists, think again. You don't need to have a formal R&D department to qualify for R&D tax credits. Schmidt outlined a number of activities that manufacturers—processors and moldmakers—perform that qualify. For example, if you are improving a product or process, that qualifies. You don't have to be inventing a new product or component—improvements on current components or processes count. "There's a lot of R&D going on in contract manufacturing and job shops," Schmidt reminded the webinar attendees. "In reality, most of you are developing manufacturing processes."