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The R&D Tax Credit for Manufacturers
The federal research and development tax credit under Internal Revenue Code Section 41 rewards qualified research activity in the United States. Qualifying manufacturers can claim a credit of up to 20 percent of qualified research expenses over a computed base amount under the regular method, or use the alternative simplified credit at 14 percent with a three-year base. Eligibility depends entirely on the facts and documentation of each company's activities, and all claims are subject to applicable tax law.
What activities qualify as research?
Per the IRS, research must be undertaken to discover information that is technological in nature, intended for use in developing a new or improved business component, with substantially all of the activity constituting a process of experimentation. In manufacturing, qualifying activity often includes new product development, process improvements, tooling and mold development, prototype testing and production software development.
Routine engineering, quality control and ordinary production troubleshooting generally do not qualify on their own. The distinction is factual and documented.
What expenses count as qualified research expenses?
Wages paid to employees for qualified services, supplies used in the research, and 65 percent of amounts paid to third parties for contract research, increased to 75 percent for qualified research consortia. Rent, overhead, general administration and foreign research generally do not qualify.
Cost tracking is the hard part: time records and project-level expense capture turn activity into a claim that can be sustained.
How does a manufacturer actually claim the credit?
Form 6765 is filed with the return, supported by a study that identifies qualifying projects, the people and supplies involved, and the base-period computation. Qualifying small businesses may be able to use the credit against payroll taxes under separate rules, which is often the fastest path to value.
Years that were not claimed may be worth reviewing within the applicable period, and credit carryforwards can extend the value of an eligible activity.
The R&D credit is real, but it is factual: qualification is analyzed, documented and claimed on the merits, never assumed.
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