Page 48 - MetalForming May 2017

Leaving Money on the Table?
Yes, if you don’t take advantage of R&D tax credits to grow your manufacturing business.
BY JOHN MADSEN
As many U.S. manufacturers actively look for business oppor- tunities to improve their prof- itability or their bottom line, one of the most overlooked resources is the ability to use federal and state research and development (R&D) tax credits.
"I am amazed at how many manu- facturers do not realize or understand the IRS's definition of R&D tax credits,” says Benjamin Rashleger, president and CEO of WSI Industries, a contract manufacturer, who discovered the ben- efits and obtained credits for his com- pany. “If you make or improve a product or a process, either for yourself or your customer, you have activities that qualify for the credit. It can substantially reduce your federal and state tax liability."
A good number of manufacturers do not believe they have R&D activities taking place in their facilities. In reality, if you quote jobs, take orders, build tools, produce products and sell them to your customers, you almost certainly conduct R&D activities.
John Madsen is vice president of con- sulting-manufacturing R&D tax credits at Black Line Group, Plymouth, MN; tel. 763/746-1265, blacklinegrp.com.
The R&D tax credit is a dollar-for- dollar reduction of your tax liabilities that provides potentially significant sources of unexpected cash for man- ufacturers of all sizes, including custom manufacturers that have incurred expenses in pursuit of new or improved products or processes.
According to Black Line Group, the regulatory definition of R&D remains much broader than most people real- ize. For example, labor and supply cost spent prototyping or using your resources and equipment; costs incurred to quote or experiment with different designs and materials; the design/engineering of new parts and or the process to make new parts; designing or developing tools, includ- ing dies and fixtures; and activities related to software development—all may generate R&D tax credits.
Manufacturers of all kinds, including those that design and develop their own products, as well as contract man- ufacturers and job shops, can take advantage of the tax credit. Both the customer and vendor (job shop/con- tract manufacturer) of an R&D part can take the credit. The customer will have qualified expenditures around
the ‘product’ development/improve- ment activities of the part or compo- nent, and the vendor will have qualified expenditures associated with develop- ing the ‘process’ for making the part.
If you are unsure of how to navigate the process, or don’t even know where to start to see if you qualify for the credit, you are not alone.
“I was skeptical when I first learned of the R&D tax credit,” explains Tom Chacon, of MN-based Boring Machine Corp. “My company did not have what I thought were true R&D activities. I was a job shop just making tools and parts for my customers. Since I learned about the tax-credit process, my com- pany has received tens of thousands of dollars every year in credits. It is like free money to reinvest in my business.”
New Legislation Enhances Tax-Credit Benefits
Until 2016, the reality was that many small and midsized manufacturing companies and their CPAs/tax advisors simply felt that it was not viable to pur- sue the credits due to specific limita- tions in the tax code.
This situation changed in late-2015 when federal legislation, the PATH (Pro-
46 MetalForming/May 2017
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