Three reasons business owners miss out on federal R&D tax credits

The federal government has had a hand in incentivizing commercial sector research and development activities since the Economic Recovery Tax Act of 1981. The resulting R&D Tax Credit has now been made permanent.

The manufacturing and the professional, scientific, software and technical services sectors have accounted for the majority of the claims in recent years. Many of the established manufacturers Nevada Industry Excellence serves have benefited by a feature of the credit which allows them to refile for credits found in a three-year look-back.

According to Terry Culp, deputy director of Nevada Industry Excellence, there are three major reasons business owners miss out on the federal tax credit.

1. They don’t think they’ll qualify.

They don’t fully understand the government criteria for this tax credit established to incentivize innovation.

Start-up companies often qualify even before they actually have revenue and are able to apply those tax credits to lower payroll taxes, up to $7,347 per employee.

The tax credit is meant to be inclusive in an effort to promote competitiveness, economic growth and national security. Qualified activities covered are broad and may include investments in employees, contractors and material costs required to create or improve processes and products. Interestingly, contract manufacturers often benefit the most from the R&D tax credit.

2. They believe the cost of documentation in time and money would not be offset by the tax credit earned.

The required analysis and documentation can be intimidating for a business owner who is focused on running their business and serving their clients.

The application process is quicker simpler when using a service company to help with the paperwork. During the first year, when utilizing a third-party expert, owners can typically expect to spend about 15 to 25 hours of their time, depending on the size of their company. Then, each year it’s less work because a process and been established. That effort is minimal, typically 15 to 20 minutes from each employee who performs technical activities.

Financial advisers rely on degreed engineers to oversee the project, with roughly 90 percent of the work completed off-site. Nominal fees charged by an experienced professional should be more than offset by the tax credits earned.

3. They don’t fully comprehend the bottom line impact of the tax credit.

Culp estimates that a company operating at a 5 to 10 percent net profit margin must manufacture and sell $500,000 worth of merchandise in order to receive the same bottom line benefit as a $25,000 to 50,000 tax credit.

Nevada Industry Excellence is a nonprofit organization helping Nevada’s Industrial companies achieve their goals of enhanced productivity, increased profitability and improved global competitiveness.

Debbie Donaldson is founder and CEO of, serving entrepreneurs and professionals. Las Vegas Business Press readers may download a complimentary copy of her new book “SALES FUEL” at

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