Financial Benefits of IC-DISC and R&D Tax Credits for U.S. Manufacturers [FREE WEBINAR]

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Is your manufacturing company one of the many in the United States that is experiencing a rapid increase of exported goods?  Exporting creates an opportunity to use a tax savings strategy by creating an Interest Charge – Domestic International Sales Corporation (IC-DISC). Not just for large C-Corporations, an IC-DISC applies to small/medium pass-through entities as well. However, while over 6000 small and medium businesses take advantage of the tax incentives of the IC-DISC, thousands more that are eligible are failing to do so.

Likewise, another tax incentive frequently overlooked by manufacturing companies is the R&D Tax Credit, who presume they must have on-site laboratories or breakthrough ‘white-lab coat’ research to claim the credits. Comparatively, others distress that they will face complex tax calculations or that it will trigger an IRS audit. However, many small businesses can claim the R&D tax credit. Moreover, with the changes to the permanency of the R&D tax credit and the PATH Act, the credit is now more easily available to smaller companies and start-ups.

Therefore, to elaborate on these often disregarded tax incentives, Swanson Reed has teamed up with Export Advisors to provide a FREE Webinar next week on the tips and tools you need for claiming the R&D tax credit and the  IC-DISC in the manufacturing sector. This webinar also includes an interactive Q&A session at the end to answer any questions you may have.

WHEN: Tuesday, August 23, 2016 from 1:00 PM to 2:00 PM (CDT) – Add to Calendar
Cost: Free

Structure:
1:00pm – 1:25pm CDT – R&D Tax Incentives for the Manufacturing Industry
Presenter: Cherie Jones, Tax Director – Swanson Reed
1:25pm – 1:50pm CDT – IC-DISC for the Manufacturing Industry
Presenter: Dave Spray, President – Export Advisors
1:50pm – 2:00pm CDT – Interactive Q&A Session

To ensure you don’t miss out, register for our free webinar on EventBrite:  https://www.eventbrite.com/e/financial-benefits-of-ic-disc-and-rd-tax-credits-for-us-manufacturers-tickets-27137424768 

New FDA Regulations Create R&D Tax Credit Opportunities For Food Manufacturing

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On September 10, 2015, the Food and Drug Administration released the final preventive controls rules to implement the FDA Food Safety Modernization Act (FSMA). The two new food safety rules aim to ensure the U.S. food supply is safe by shifting the focus from responding to contamination to preventing it.

The new guidelines, identified as the “Preventive Controls for Human Food rule” and “Preventive Controls for Animal Food rule,” embody a major alteration in how the federal government proceeds with food safety. Traditionally, the government carried out a responsive, crisis-based approach. Now, as a consequence of these new rules, a preventive model will become the standard model.

Consequently, the roll-out and implementation of the Food Safety Modernization Act has brought change to all aspects of food and beverage manufacturing. In particular, the regulations will require food manufacturers to highlight potential risks and develop control systems to prevent or minimize identified issues. Ultimately, the new rules affect virtually every facet of the food manufacturing industry and will entail heavy investment in technological improvements for food manufacturers across the “farm-to-table” sequence.

Despite posing as a potential challenge for the food manufacturing industry, the Research and Development (R&D) tax credit opportunities are one means of decreasing the cost acquired by companies in becoming compliant with the new regulations. The R&D Tax Credit is a frequently overlooked tax benefit, with companies often mistakenly believing they don’t qualify. The government lets you deduct the costs of research and experimentation to develop or improve a product, formula, invention, process or technique.

In regards to the new regulations, the R&D tax credits could apply to many of the activities that the food manufacturing industry will need to undertake in meeting the new FDA requirements. The credits are often mistakenly assumed to apply only to the creation of a new product or package, but there are actually a number of ways in which food manufacturing companies can qualify for research tax credits,including:

  • Brain-storming about how to approach the quarantining process of contaminated food as a whole;
  • Improving facility safeguards to protect against the adulteration of food at various points in the manufacturing process;
  • Developing and testing prototypes of new manufacturing equipment or new components for existing equipment to better guard against error; and/or
  • Enhancing the functionality of software used by equipment involved in screening out contaminants.

As can be seen from the above, the food manufacturing sector has significantly changed due to the new regulations; bring bringing new opportunities and challenges to business leaders and policy makers. These regulations will demand substantial industry investment to meet the challenges presented by the new rules. This ultimately reveals that the R&D tax credit is not simply an important option for the manufacturing industry to utilize, but one which it would need to use to remain competitively viable.

If you would like more information, contact us today to discuss your eligibility and learn more about how the R&D Tax Incentive may benefit your business. Alternatively, earlier this year Swanson Reed teamed up with Capstan Tax Strategies to provide a  free seminar  on the tips and tools you need for claiming the R&D tax credit in the manufacturing sector. To learn more, watch the manufacturing webinar on YouTube at: https://www.youtube.com/watch?v=Zqw6sUXZhPg

NAM Manufacturers’ Seek Tax Reform to Boost Competitiveness

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Indeed, the slowing global economy, a still-cautious consumer, rising interest rates, a stronger dollar, and tax and regulatory uncertainty could each pose downside risks to U.S. economic growth. Along those lines, manufacturing production and retail sales numbers have been lower than expected over the past few years, and export sales growth has continued to be sluggish in light of economic challenges abroad.

With that said, manufacturers in the recent National Association of Manufacturers (NAM) Manufacturers’ Outlook Survey remained mostly optimistic. In specific, 61.7% of manufacturers said they had a positive outlook for their company, up from 56.6% in March and 59.6% in December.

On the other hand, the numbers in the report reflect manufacturers’ seemingly overwhelming frustration with regulations and finances. Manufacturers view a corporate tax rate of 25 percent or less, a long-term research and development tax credit, and robust cost-recovery provisions as essential elements of tax reform that would make them more competitive.  In specific, 82.6% of respondents said their company’s total spending on state and federal regulatory compliance had increased over the last few years — with capital investments and expenditures the most likely use of funds if those compliance costs dropped — while 74.3% favored lowering the corporate tax rate to 25%.

Of all of the key indicators, research and development (R&D) remains a key concern for manufacturers in the survey. In specific, more than three-fifths of respondents said they favored making an enhanced research and development incentive permanent, with 55.0% expressing a desire for robust capital cost-recovered provisions as a chief component of comprehensive tax reform.

Nonetheless, the current R&D tax credit remains a frequently overlooked opportunity for manufacturing businesses. Alongside traditional manufacturing, the United States is seeing a rising wave of innovation that has the capacity to transform existing markets and value networks. However, many innovative manufacturing companies are unaware of the potential cash-saving benefits they are eligible for.

In light of this, Swanson Reed, in partnership with Capstan Tax Strategies, recently completed a webinar which covered the basics of claiming the tax credit and cost segregation for the manufacturing industry. View the webinar here, or alternatively, on YouTube at: https://www.youtube.com/watch?v=Zqw6sUXZhPg 

Swanson Reed’s R&D tax professionals are available to discuss the R&D tax credit – contact us today if you would like to know if your company qualifies.

How the PATH Act Can Benefit Your R&D Tax Credit

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In December 2015, the federal R&D tax credit was made permanent by The Protecting Americans from Tax Hikes Act of 2015 (“PATH” Act). Apart from instilling confidence in US businesses to invest in R&D, the PATH Act included two new provisions that will make it easier for startups and small and medium-sized businesses to immediately benefit from the R&D tax credit.  

Essentially, taxpayers that couldn’t utilize or take full advantage of the tax credits in the past should now reassess their eligibility and possibly take advantage of this lucrative incentive.

However, there are a lot of questions surrounding the new rules of the permanent R&D Tax Credit, in particular, the new payroll tax offset. To provide clarification, our latest video tutorial outlines the fundamental aspects of the PATH Act, focusing on the new adjustments to the payroll tax offset.

Discover how the PATH Act of 2015 can benefit your R&D Tax Credit in under five minutes below. Alternatively, watch on YouTube at: https://www.youtube.com/watch?v=MQjLcptoSGU&feature=youtu.be

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Check out our series so far:

If you are wishing to claim the Payroll Tax Offset, and avoid IRS inspection, you may wish to contact a qualified R&D tax specialist, such as Swanson Reed. In addition, you will need to properly document your R&D projects as soon as they start. Read our blog on ‘How to make the most of your R&D Tax Credit Claim’ to discover more about the documentation needed.

Contact Swanson Reed for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.

 

New Regulations Impacting Research Credit Carryforwards from Closed Years

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In November 2015, the IRS issued a private letter ruling circumstantiating that passthrough entities may claim unused credits on a carryforward basis. Nonetheless, the IRS also recently published regulations which prevent a taxpayer from increasing research credit carryforwards from closed years by nominating the alternative simplified credit (ASC) method.

Background

The Alternative Simplified Credit (ASC) is an alternative method used to compute Research and Development (R&D) tax credits. Historically, Sec. 6511(a) restricts taxpayers to filing a claim for refund within the later of three years from the time the return was filed or two years from the time the tax was paid. Consequently, a taxpayer typically loses the opportunity to claim a credit once the Sec. 6511(a) limitation period finishes.

In Rev. Rul. 82-49, the taxpayer was allowed to carry the investment tax credit back three tax years and forward 15 tax years, under then-Sec. 46(a). Currently, Sec. 39 allows a taxpayer to carry forward Sec. 38 general business credits for 20 tax years. General business credits include, for example, the investment credit now under Sec. 46, the employer Social Security credit (Sec. 45B), and the research credit (Sec. 41).

New Guidance:

In Letter Ruling 201548006, IRS stated that a taxpayer should compute a carryforward of the general business credit based on the proper credit that was earned in the original tax year even if closed prior to any correction; the ruling is consistent with prior guidance in favour of IRS requiring that a tax payer use the proper lower tax benefit on a carry forward when the year in which a higher than proper amount was claimed is closed.

Impact on Research Credit:

Letter Ruling 201548006 has direct application to the Sec. 41 research credit. Comparable to the Sec. 45B credit, the research credit is specifically incorporated in the list of general business credits under Sec. 38 (Sec. 38(b)(4)). Consequently, the research credit would be issued the same rules defined in the letter ruling and that the IRS’s analysis would be alike. A research credit initiating from closed years and being carried into an open year in arriving at tax due can be alternated to correct computational errors (Rev. Rul. 82-49). Yet, based upon the justification in the letter ruling, it is clear that the adjustment to correct for computational errors – or a failure to properly claim a credit – can be applied not only to C corporations, but also to partnerships and S corporations.

Takeaway: 

In conclusion, a general business credit originating from closed years and being carried into open years in arriving at tax due can be adjusted to correct errors under the applicable provisions of the law by both the Service and Taxpayer. Overall, existing authority, combined with Letter Ruling 201548006, establishes that a research credit originating from a closed year and being carried into an open year can be adjusted by both C corporations and flowthrough entities. Nonetheless, it is important to note that the preamble to the final ASC regulations prohibits taxpayers from adjusting credit carryforwards under Rev. Rul. 82-49 for prior-year ASC elections, as that can only be accomplished via an amended return.
Contact Swanson Reed for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.

Benefits of R&D Tax Credits & Cost Segregation in Manufacturing [Webinar]

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Undeniably, the manufacturing sector has a large footprint in the U.S. economy. It employed 12.0 million workers in 2013, equating to 8.8 percent of total U.S. employment. In particular, the manufacturing sector plays a key role in the evolution of innovation and the sector remains a critical force in both advanced and developing economies. However, many innovative manufacturing companies are unaware of the potential cash-saving tax benefits they are eligible for.

Therefore, to elaborate on this topic, Swanson Reed teamed up with Capstan Tax Strategies to provide a  free seminar  on the tips and tools you need for claiming the R&D tax credit in the manufacturing sector. This webinar also includes a comprehensive overview of cost segregation as it relates to the manufacturing industry.

To summarise, tune into the free webinar below to learn the following key topics:

  • An overview of the R&D Tax Credit;
  • R&D activities as they apply to the manufacturing industry;
  • Manufacturing case studies; and
  • The basics of cost segregation for the manufacturing sector.

Furthermore, previously, Swanson Reed hosted a free webinar the benefits of the R&D tax credit for those in the oil and gas industry. In this webinar, our specialists covered the basics of the credit, explored an oil and gas case study and detailed the qualifying activities in the oil and gas industry. This webinar can be found here.

Watch the manufacturing webinar below, or alternatively, watch on YouTube at: https://www.youtube.com/watch?v=Zqw6sUXZhPg

Swanson Reed specialises in the R&D Tax Credit – contact us today to discuss your eligibility and learn more about how the R&D Tax Incentive may benefit your business.

How to Claim the R&D Tax Credit for the Manufacturing Industry

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Not surprisingly, 60 percent of small-business owners say administrative burdens, like paperwork and confusing rules, are the worst part of filing — even more so than the financial cost of taxes, according to a recent survey by the National Small Business Association.

Nonetheless, there are many tax options available that may reduce the taxes you and your business owe — possibly by thousands of dollars.  In particular, the R&D Tax Credit is a frequently overlooked tax benefit, with companies often mistakenly believing they don’t qualify. The government lets you deduct the costs of research and experimentation to develop or improve a product, formula, invention, process or technique.

To expand on this, Swanson Reed is hosting a free webinar the benefits of the R&D tax credit for those in the manufacturing industry. In this webinar, Swanson Reed has teamed up with Capstan Tax Strategies to provide free live global seminar on June 22, 2016, at  1:00pm – 2:00pm CDT to cover tips and tools for claiming the R&D tax credit in the manufacturing sector.

Tune into the free webinar tomorrow to learn:

  • An overview of the R&D Tax Credit;
  • R&D activies as they apply to the manufacturing industry;
  • Manufacturing case studies; and
  • The basics of cost segregation for the manufacturing sector.

The structure of the day is as follows: 

  • 1:00pm – 1:25pm CDT – R&D Tax Incentives for the Manufacturing Industry
    • Presenter: Cherie Jones, Tax Director – Swanson Reed
  • 1:25pm – 1:50pm CDT – Cost Segregation for the Manufacturing Industry
    • Presenter: Terri Johnson, Managing Partner at Capstan Tax Strategies
  • 1:50pm – 2:00pm CDT – Interactive Q&A Session

*This webinar has now been, to watch this webinar online see: https://www.youtube.com/watch?v=Zqw6sUXZhPg 

Important Considerations for Mid-Year Tax Planning

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As the month of June advances, we are rapidly approaching October and the start of a new fiscal year. Although it may seem premature, now is a good time for businesses and individuals to take stock of their tax obligations and identify tax planning opportunities for the year ahead. Ultimately, creating a tax reduction strategy is much easier when you have time to put your plan into action.

In December 2015, the Protecting Americans from Tax Hikes Act of 2015 (PATH) was passed inhibiting a tax increase that would have impacted middle-income taxpayers and families, particularly those with small businesses. The PATH Act made many popular tax benefits permanent, yet the legislation included in the PATH Act is comprehensive and, in some cases, complex in nature.  Therefore, to receive the full benefit of the potential tax saving opportunities, we’ve highlighted a few of the major changes you should consider during your mid-year tax planning efforts.

Most notably, one of the biggest tax breaks included in the PATH Act is the renewal, and permanent extension, of the tax credit for increased research expenditures. The Research and Development Credit (R&D Credit) is valuable, but because of its intricacy, the credit is often misunderstood and overlooked. However, if your business undertakes research in correlation with developing new or improved products, technologies or processes, you may qualify for the R&D Credit. The credit is obtainable to businesses in an extensive range of industries, including manufacturing, technology, healthcare, construction, agriculture, and more.

Moreover, as many businesses that are involved in R&D activities are not yet profitable, the PATH Act now permits for the R&D credit to be claimed against payroll tax liabilities. This drastically changes the way in which the R&D tax credit can be claimed and will provide an instantaneous cash boost to those innovative businesses that need it most. Moreover,  starting 2016, businesses (and business owners) with less than $50 Million in gross receipts can now offset their AMT tax liability with R&D tax credits.

Ultimately, the enhanced capability for more small businesses to use the R&D credit should result in an economic boost to many taxpayers. Start-ups, in particular, can now enjoy current cash benefits rather than having to wait until their companies produce taxable income to take advantage of the credit savings. It is imperative, however, that businesses recognize what kinds of costs are eligible in order to maximize the credit so that appropriate records can be sustained throughout the year. Swanson Reed’s R&D tax professionals are available to discuss the R&D tax credit and the changes in the new PATH Act – contact us today if you would like to know if your company now qualifies.

 

 

3 Key Misconceptions About the R&D Tax Credit

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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 three of the most common misunderstandings exposed:

#1: The R&D tax credit is only for white-coated scientists or 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.

Furthermore, 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.

#2 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.

#3 The R&D  tax credit is reserved for large companies

Historically, many startup companies and small businesses were unable to benefit from the research credit due to operating losses or alternative minimum tax limitations.  However, in addition to making the research credit permanent, the Protecting Americans from Tax Hikes (PATH) Act added two new provisions that are effective January 1, 2016. These two provisions are designed to increase the number of startups and small to mid-sized businesses that can benefit from the credit. In our last post, we went into details of both of these two modifications to the credit.

It is imperative, nonetheless, that businesses recognize what kinds of costs are eligible in order to maximize the credit so that appropriate records can be sustained throughout the year. Swanson Reed’s R&D tax professionals are available to discuss the R&D tax credit and the changes in the new PATH Act – contact us today if you would like to know if your company now qualifies.

R&D Tax Credit for Internal-Use Software (IUS)

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In the era of the digital age, there are few areas of our lives which are not impacted by the use of technology. The business world, in particular, is moving faster and becoming more global, more mobile, and more digitized.  Ultimately, as technology advances, the digitalisation of the corporate workplace is inevitable.

As a result of this digitalization, many companies have internal-use software (IUS) systems in place. To clarify, IUS includes software that has been acquired, internally developed, or modified exclusively to meet the entity’s internal need. Nonetheless the question remains, can companies capitalize on the costs incurred in developing this type of internal software?

Our latest video tutorial explores this question and covers the qualifications for R&D Tax Credit for internal-use software (IUS).

Watch below, or alternatively watch on YouTube at: https://www.youtube.com/watch?v=G9brpOrqkRc

Want more like this?

Check out our series so far:

 

Swanson Reed is a specialist R&D tax firm and has helped many clients across a diverse range of industries. Contact us for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.