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Manufacturers Can Earn R&D Tax Credits for Activities Related to Aerospace

Posted by Allan Peiser, CPA on Jul 2, 2018 4:58:00 PM

Pardoning the pun, research and development (R&D) has taken off in the aerospace industry over the past few years. After a five-year period of stagnation, 2016 saw strong, steady growth. This growth fueled a need for continued groundbreaking technology due to aging fleets and the demand for more fuel-efficient and advanced aircraft. Advanced manufacturing technology will be required to respond to the need for the wider of use of composites and new electrical systems.

Manufacturers who spend a significant amount of time on qualified R&D activities as they relate to performance-related design improvements and exacting standards of precision in manufacturing practices may qualify for valuable R&D tax credits.

Background

The federal government implemented the Research and Experimentation tax credits in 1981 to create jobs and spur technology in the U.S. Known as R&D tax credits; the program was meant to be a temporary measure to give the economy a boost.

However, the credit was extended by Congress more than a dozen times until December 2015, when the Protecting Americans from Tax Hikes (PATH) Act of 2015 made the R&D tax credit permanent. The Tax Cuts and Jobs Act of 2017 retained the full value of the tax cuts.

The R&D tax credit originally pertained to basic research ex­penses, such as those occurring in a laboratory setting. Subse­quent modifications simplified the credit and made it available to a wider variety of businesses, and manufacturing is ripe with research opportunities. Given the popularity of the R&D tax credit program, many states followed suit by establishing their own programs. In Texas, R&D credit represents an outstanding opportunity for taxpayers to receive credit for qualified research expenses they are incurring. This incentive is in addition to the federal R&D tax program.

Qualifying Activities

Do your manufacturing operations resolve technological challenges for the aerospace industry through the innovative use of processes and products? Think in terms of new techniques, formulas, processes, software, testing new materials and the design of any new projects, such as those involving mechanical and electrical systems. Do you use innova­tive materials to create more reliable, energy-efficient products or processes?

Any time you develop new or improved manufacturing methods, you may qualify for R&D tax credits, even to the tune of hundreds of thousands of dollars.

See related blog

The R&D tax credit can be a lucrative incentive for innovative manufacturers working in the aerospace industry as well as a number of others industries. Eligibility requirements are clearly defined—companies seeking to take advantage of the credit must be prepared to identify, document and support their qualifying activities. It is essential that your business establishes appropriate tracking mechanisms and documentation strategies for their R&D activities.

Questions about R&D tax credits for manufacturers? The professionals at GPP have vast experience advising their manufacturing clients on not only R&D tax credits but other tax credits and incentives available to your industry. Contact the manufacturing team at GPP or Allan Peiser at 214-635-2503.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article. 

Topics: Manufacturing