When the subject of research and development (R&D) tax credits is mentioned, images of white coat scientists are often conceptualized. However, those designing and creating those white coats may be eligible for the claim too. In fact, R&D tax credits are a frequently overlooked opportunity for retail and apparel companies.

Furthermore, several businesses in the apparel industry are unaware that they may be eligible for the credits due to the fact they manufacture their products overseas. Nonetheless, these same companies frequently have sample makers or testers here in the United States. Despite offshoring the production of their products in Asia or Europe, a company’s domestic design and development activities may still make them eligible for federal or state R&D tax credits.

Certainly, by capitalizing on these opportunities, fashion and apparel retailers can produce generous tax savings, including generating cash for their past and future investments. To meet the requirements for the credit, a company must endeavour to cultivate or improve the quality, reliability, or functionality of one of its processes, products, or software.  Thus, as defined by the IRS, the R&D credit is essentially an activity-based credit.

In fact, several apparel manufacturers have previously executed qualifying activities. Although aesthetic modifications are not traditionally eligible, activities related to improving a garment’s functionality or performance, for example weather-resistant clothing or dye formulas, may well qualify. In addition, software development, such as e-commerce and point-of-sale solutions, can also be eligible.

Moreover, the use and further development of innovative materials are also likely to lead to further activities that qualify for the R&D tax credit.  An example of a company utilising innovation in the apparel industry is Kusaga Athletic, aka creators of the ‘greenest t-shirt on the planet’. The company spent two years in R&D and have developed and prototyped a compostable, biodegradable shirt that uses less than one per cent of water to manufacture a standard cotton tee. This is exceptionally eco-friendly as it takes 3,000 litres of water to make a single cotton t-shirt and over two billion t-shirts are sold worldwide every year. Hence, due to investing in R&D, Kusaga Atheletic is having a huge positive impact on the effect of climate change.

Consequently, R&D can not only have a positive effect on the environment, but can also increase a company’s competitive edge in an increasingly innovative economy. Thus, organizations that take advantage of these incentives to drive innovation can create tax savings for their own business and assist in generating growth for their national issues, business models and interactions with customers, suppliers and intermediaries. If you believe your company is undertaking qualifying R&D activities, contact one of our specialists today to find out if you could benefit from R&D credits.

Our lack of hover boards, self-drying coats, and the fact that we’re still merely driving on the ground, may bemoan several Back to Future Part II fan’s as October 21, 2015 approached.  If you hadn’t yet heard, today is the day that Michael J. Fox’s iconic character Marty McFly disembarked in a future that Hollywood envisioned almost 30 years ago. However, now that 2015 is here, it just so happens that not all the predictions were completely astray.

Indeed, the future of 2015 that Marty McFly helped us foresee was both endearing and entertaining– not grim and dystopian like Orwell’s 1984 or Bradbury’s Fahrenheit 451. However, in celebrating our technological advancements, it’s vital to recall that none of these innovations simply occurred by accident. Rather, they are the product of companies investing in research and development – much of it encouraged by the government. Here are four prime examples:

• 3D Technology:

In the film, McFly is surprised to see an advertisement for ‘3D Jaws: 19’. Despite never getting quite so many Jaws sequels, 3D films do indeed exist, with many individuals even having the technology available in their own home televisions. Moreover, 3D technology in research and development has driven innovation in many different industries. For example, recently the Imperial College in London developed a 3D imagery of the human heart and medically used it to predict and possibly intercept heart disease before it even started to progress.

• Tablets and Other Smart Devices

The tablet props in Back to the Future II parallels the reality of our miniaturization of electronic devices in recent years. Federal funding assisted in commercializing the primary technologies that now control our tablets and other mobile devices. Moreover, early touch screen research also secured assistance from the federal government through National Science Foundation grants and fellowships.

• Artificial Intelligence:

Digital topics headline the newspapers of McFly’s alternative future, as they are starting to do in the present. News-processing applications use algorithms to collate data into available reports, with the Associated Press publishing over 4000 AI-generated articles every quarter. Preliminary efforts in Artificial Intelligence (AI) depended on federal funds from the Air Force and Defense Advanced Research Projects Agency (DARPA), who pushed AI research  as a priority in the 1960’s to 1990’s. This push by DARPA laid the foundation for AI research through several public research universities, hence resulting in the diffusion of AI research across private and public sectors.

• Biometric Technologies

Back to the Future II demonstrated fingerprint recognition technology for security purposes. Today, similar technologies exist and are the idea behind the biometric security features for Apple’s Touch ID and the latest Samsung Galaxy series. Post-9/11, the USA Patriot Act drove the push to research and develop more innovative methods of biometric identification.

Although we may not be commuting to work on hover boards just yet or dining on dehydrated pizza (fortunately), Back to Future II presented a technologically stimulating view of the future. However, if we want to observe more cutting-edge innovations like these in the future, it is vital for companies and the government to continue to invest in research and development. Have you worked on a research and development project? Whether your research encompasses flying cars, self-tying shoes, or more likely, improvements in business processes and products – contact us today to find out if you’re eligible for R&D Tax Credits.

Texas positions among the top performing states on the U.S. Chamber of Commerce Foundation’s Enterprising States: States Innovate study released Monday, coming consecutively in second place in the study’s overall economic performance rating, long term growth rating, gross state product growth rating, and STEM job growth rating. The study, Enterprising States: States Innovate,  uses 35 metrics measuring “overall economic performance” to compare and rank states in pivotal policy areas for job growth and economic health. The six policy categories were economic performance, high-tech performance, transportation and trade, talent pipeline, innovation and entrepreneurship, and business climate.

In relation to the study, Carolyn Cawley, managing director of the U.S. Chamber of Commerce Foundation, divulges that the findings, “reveal that states invested in the STEM economy are likeliest to thrive.”  Indeed, the report outcomes affirm that the future of our states—and their capability to combat major economic, social and environmental challenges — rests fundamentally on how they utilise and benefit from technology. Cawley further notes, “technology is reshaping established fields of medicine, manufacturing, energy and business services, and shifting the spotlight from Silicon Valley to other corridors of homegrown innovation.”

Certainly, Texas has performed well due to an infrastructure that nurtures education, research, and entrepreneurship. The report highlighted key strengths in the Texas economy, noting that the state has added more jobs than any other state in 2014 alone, and has led the nation in job growth for the fifth consecutive year. Moreover, the study revealed that Texas companies, universities, and research institutions are national and global leaders in research and development in many industries, including electronics, medical, biotechnology, aerospace, advanced materials, and energy.

From this study, one can see the effect innovation can have on industrious states. In the Enterprising States: States Innovate overview, the author notes that “innovation drives economic growth. This is one of the most consistent findings in macroeconomics, and it’s been true for centuries.” In addition, economists have calculated that approximately 50% of U.S. annual GDP growth is attributed to increases in innovation.

However, how do companies create this innovation to drive economic growth? Both economic theory and empirical analysis emphasize the vital position of R&D in economic growth. R&D, which may take the structure of basic research, applied research or experimental development, encompasses “creative work undertaken on a systematic basis to increase the stock of knowledge… and the use of this stock of knowledge to devise new applications” (OECD, 1994). Ultimately, R&D produces technology to boost economic growth, address societal concerns such as health and environment issues, and improve living standards. Overall, as the Enterprising States: States Innovate study highlighted, the prosperity of America’s states rests largely on how they adapt to and take advantage of changes in technology. Given the benefits of a technological economy outlined in the previous paragraphs, it is clear to see that investing in R&D is a way of spurring economic growth and taking advantage of the opportunities technology has made available.

Hence, due the contribution of R&D to productivity growth, economic performance and the achievement of social objectives, governments do have a role in encouraging the appropriate R&D levels and expenditures. In the United States, companies are granted R&D tax credits, which are tax incentives for performing qualified research (not necessarily successful) in the U.S., resulting in a credit to a tax return. If you want to learn more about R&D tax credits, contact a Swanson Reed specialist today for further information.

References:

OECD (1994), The Measurement of Scientific and Technical Activities, Proposed Standard Practice for Surveys of Research and Experimental Development, “Frascati Manual”, Paris.

Smart phones, smart cities and even smart toothbrushes, is this’ smart technology’ trend derived from creativity, ground-breaking innovation, or both? “Creativity” and “innovation” are two words that frequently get pitched in brainstorming sessions or company mission statements. Without a doubt, these principles are highly esteemed in the modern workplace, but do leaders who use the expressions accurately know the difference between them?

The key disparity between creativity and innovation is the focus. Creativity is subjective – it is almost impossible to measure and is about releasing the possibilities of the mind to generate new ideas. Innovation, on the other hand, is completely measurable. Innovation is about implementing adjustments into moderately stable systems to make an idea practical. Thus, an organisation can use innovation to apply its creative assets to propose a suitable solution and acquire a return on its investment.

Therefore, to ensure companies remain competitive in a rapidly intensifying and accelerating technological market, businesses need to develop creativity and turn it quickly into innovation. One trend that is harnessing creativity and innovation is ‘smart products’. Consider the “smart” Johnnie Walker bottle, which sends a personalized message to every customer who waves a smartphone in front of it, whether it be a promotional offer or a cocktail recipe. The bottle can be tracked from its point of manufacture to the point of consumption, allowing for incredible customer behavior examination.

From R&D and manufacturing, through distribution and customer behavior, product data is changing how products are researched, built, sold and cared for. Latest research from Cognizant’s Center for the Future of Work—a survey of over 200 global product design and innovation executives in partnership with the Economist Intelligence Unit—underlines stages businesses can take to benefit from the fast-accelerating trend of smart products.

Cognizant suggests making the follow adaptions to pursue a smart product strategy in the 21^st century:

• Engage customers at the start of the journey – customer insight will ensure your features are desirable, which will encourage more interaction and data
• Develop the mindset to experiment – utilize product data to experiment, research and develop new innovation streams and enrich customer experiences
• Re-calibrate processes and the business models – as customer insights emerge, models must adapt to the large-scale adoption of smart products
• Start the process of striking new, innovative partnership approaches – seek to develop new corporate structures to maximize growth

Overall, creativity is vital in today’s business world to stimulate new ideas. However, driving business ultimately derives from sifting creative ideas through an innovation process to initiate those ideas into action.  Thus, stressing the importance of leveraging the data that surrounds people, organisations, products, and processes, to drive R&D and build new revenue streams and new commercial models. Indeed, creativity is the price of admission, but it’s innovation that pays the bills.

Creativity and innovation can create new opportunities for your business and allow for the creation of new products or solutions, via research and development. Contact us today to see if you are eligible to claim the R&D Tax Relief.

Unfortunately, only one out of twenty small and medium sized companies who are eligible for the United States R&D tax credit take advantage of it.  However, smaller companies should not be dissuaded from filing it – particularly as the tax credit could be worth up to $10 billion annually to firms. Don’t hold back your claim this year, here are seven of the most common myths debunked:

Myth #1: The R&D tax credit is limited to companies conceiving a new invention

The R&D tax credit is intended to boost innovation and improve business processes. It is not confined to creating the latest tech products or getting a patent. The R&D tax credit also encompasses companies who are improving or modifying products or manufacturing processes, for example, making a product cleaner, quicker, greener, or cheaper. By no means does the development or improvement effort have to equate to rocket science.

Myth #2: The tax credit is only for labs or those staffed by white-coated scientists

Companies involved in basic research are understandably primary candidates for the R&D tax credit; however, the credit is also serious about enhancing applied science – resolving a customer’s issue or a production problem using acknowledged scientific principles. Problem solving on the site, in the field, on the shop floor, or even behind a computer – all may eligible for the R&D tax credit.

Myth #3: The Tax credit is reserved for large companies

The big companies, staffed with tax lawyers, are indeed all over R&D tax credit. However, the R&D credit is available for small and medium businesses too, but companies do need to take the initiative to apply to get it – the IRS isn’t simply offering out credits.

Myth #4: My company isn’t in the correct industry

Swanson Reed has assisted businesses across the globe claim the credit, including agricultural firms to engineering firms and companies involved in food processing to researching natural medicine. Self-censoring is the major barrier to companies claiming the R&D tax credit.

Myth #5: The R&D tax credit won’t help state taxes

In most cases, if your company is qualified for the federal credit, it should also benefit from the state credit. Thirty-eight states have a state R&D tax credit – and several states are looking this year to increasing their R&D tax credit or producing one. Several companies have been able to use state R&D tax credits to eradicate or considerably reduce state income taxes.

Myth #6: The R&D tax credit is too good to be true

Since its conception in 1981, the R&D tax credit has aided thousands of companies in a extensive variety of industries each year. However, the IRS isn’t handing out this tax credit; you need to correctly document your activities and properly apply the law.

Myth #7: The R&D credit will go if we have a tax reform

The R&D tax credit is supported on a bipartisan basis in both houses and by the Obama Administration. All signs are it will stay in place even with tax reform. Nonetheless, in many circumstances your business may be entitled to file an amended return and claim the credit for the preceding three years.

Have any more questions or myths you want unwrapped? Contact us today to find out if your business could claim the R&D tax credit. 

The National Association of Manufactures (NAM) released a report earlier this year that analyses the economic impact of the R&D tax credit, worth approximately $7 billion annually in recent years. The report, titled A Missed Opportunity: The Economic Cost of Delaying Pro-Growth Tax Reform, strengthens the debate for making the R&D permanent in the United States.

Although the U.S. business tax code has long acknowledged the prominence of research and development activity, the tax credit has yet to become a permanent fixture for these expenditures. The R&D credit was introduced in 1981 but has expired and been renewed on 16 occasions. The report believes that a permanent tax credit would promote investments that fund productivity gains and result in greater earnings for workers.

Furthermore, the report reviews scholarly literature to conclude that making the credit permanent could add almost 1 percentage point (about 0.9) to GDP growth on an annual basis. The authors highlight that R&D activity is indispensable to a competitive manufacturing sector and plays an imperative role in an economy.

In contrast, lawmakers believe the credit’s long-term cost may be a problem. Analysts estimate that by making the break permanent, tax revenues would be reduced by approximately $100 billion to $150 billion over the next decade.

However, the report combats this by noting that a pro-growth tax plan would add between 492,000 and 522,000 jobs per year, or more than 6.5 million jobs over 10 years. Moreover, NAM puts the accumulative 10-year effect between 2015 and 2024 at a more than $12 trillion upsurge in GDP comparative to Congressional Budget Office forecasts. Approximately 42 percent of this impact, NAM notes, would derive from lower tax rates on corporate and non-corporate pass-through income.

Indeed, strong policy can be a catalyst for growth and the primary purpose of tax reform is to enhance economic growth by expanding the economy’s potential. However, whether or not these numbers impact the Congress’s decision is yet to be seen until lawmakers begin discussing tax policy in earnest later this year.  In the meantime, the tax credit has been renewed for the 2014 financial year and companies are still able to aid from the financial benefits, despite it not yet being a permanent credit. Contact us for more information if your company is engaging in R&D activities and you would like to learn more.

 

 

This month the World Economic Forum released the 2015-2016 Global Competitiveness Report, with the United States achieving a commendable overall rank of 3 out of 140. For just over a decade the World Economic Forum (WEF) has published its annual competitiveness report, which assesses the strength of countries’ based on 12 ‘pillars’ of society, including innovation, institutions and infrastructure. It then ranks these countries based on their overall ability to promote prosperity for their citizens.

Further details in the report reveal that the United States was second in the world for ‘capacity for innovation’ and highlighted a major strength of market size. According to the report, the country’s innovation capacity is driven by collaboration between firms and universities, human capital, and company spending on R&D.

As can be seen by the World Economic Forum Report, innovation and R&D is vital in ensuring a country remains globally competitive. Although the expressions “Research and Development” or “R&D”, can often contrive images of white coated scientists, huddled over an array of test tubes in lab, the reality is considerably different.  In fact, the definition of Research and Development as it relates to the income tax credit is rather comprehensive.  The federal tax credit for companies that invest in research and development (R&D) is one of the most widely used corporate tax breaks. More than 20,000 U.S. businesses—many of them small—usually claim the credit to decrease their tax obligations. The credit means companies have more money available to invest in future innovation.

Given the competitive advantages of innovation as outlined in the World Economic Forum Report, it is clear that R&D can assist countries and businesses remain relevant in a global environment. Tax credits have a positive effect on corporate R&D investments, by increasing the amount of R&D carried out by each company, and by lowering its marginal costs. If your company is interested in claiming the R&D Tax Credit  please contact one of our Swanson Reed specialists for more information.