Contract manufacturers often hold the misconception that they're ineligible for R&D tax credits due to their focus on production and lack of involvement in final component design. However, this is a common misunderstanding.
In reality, contract manufacturers are highly qualified for these credits thanks to their crucial role in:
- Developing and refining complex production processes – This often requires extensive experimentation and problem-solving, perfectly aligning with R&D criteria.
- Creating prototypes and first articles – These activities directly contribute to product development and innovation, both qualifying factors.
- Validating components and exploring new materials – These efforts involve technical uncertainty and experimentation, key aspects for claiming R&D tax credits.
Furthermore, contract manufacturers can offset costs associated with raw materials and components used in R&D activities, mitigating financial risks and boosting future investments.
R&D Tax Credit Qualification for Contract Manufacturers
The company’s R&D efforts span from initial brainstorming sessions to detailed design phases and numerous trial runs. They utilize advanced software like SolidWorks for design, simulation, and feasibility studies. Prototypes undergo destructive testing including tensile and compression tests, with multiple iterations to ensure quality and functionality.
R&D Tax Credits with GOAT.tax
With our consultative approach to the research and development tax credit, we invest time understanding each client’s history, current business direction, and future growth objectives. Each year we re-evaluate a company’s ability to accept the tax credit and provide on-going recommendations to improve the R&D tax credits process.