The recent economic upheaval has caused short term credit lines to be reduced or even pulled altogether. This has caused financial stress for many companies.
There is a Solution that Puts Cash in Your Bank Account with Interest
What if you could get cash back with interest from the IRS within 90 to 120 days, would that help? What if that extra cash back ranged from the tens of thousands to the millions?
Would that extra cash help with your cash flow or give you the opportunity to make an investment in equipment or expansion? Or could you use the extra cash for other purposes to help your company?
How is this possible?
Most manufacturing firms are missing out on 5, 6 or 7 figure manufacturing credits. The existing R&D Tax Credit is overlooked because most manufacturers do not understand that their every day activities already qualify for the credits. The IRS recently relaxed the rules as to what constitutes R&D so many companies are unaware that they now qualify for this great tax incentive.
And in most cases, neither does your CPA understand because it requires very specialized knowledge and that's why they have never approached you.
It takes a team of specialized tax engineers and IP attorneys to understand which activities qualify and to create the documentation to substantiate those qualifying activities.
The following are examples of qualifying activities for the R&D Tax Credit:
Plastic part manufacturing
Rapid prototype modeling
Design - AutoCAD
Aluminum prototype tooling
Silicone tooling
Injection, Blow, Compression molding
Vacuum forming
Precision CNC Machining
Solvent and Adhesive Bonding
Thermoforming Process
Quality Assurance
Here are a few examples of companies and their Net R&D Tax Credit:
1) Tool & Die Shop
Average 4 year payroll of $3.5 Million
Net Credit Benefit for 2004 through 2007 tax years: $200,000
2) Foam Products Manufacturer
Average 4 Year Payroll of $19.5 Million
Net Credit Benefit for 2004 through 2007 tax years: $1,200,000
3) Software Company
Average 4 Year Payroll of $6.5 Million
Net Credit Benefit for 2004 through 2007 tax years: $500,000
4) Custom Plastics Products Manufacturer
Average 4 Year Payroll of $11.5 Million
Net Credit Benefit for 2004 through 2007 tax years: $700,000
As you can see, even for smaller sized entities, the tax benefits can be significant if you consider the amount of revenue that it would take to generate the same net benefit.
Why do you get cash back?
The IRS recently changed the rules allowing companies to go back 3 years and take the credits they missed. 90 to 120 days after submitting amended returns, you will get cash back with interest. And of course you can take credits for current and future years if you continue to perform similar activities.
Should my company take a look at this?
By the very nature of your business, all manufacturing firms have qualifying activities. The question is can you actually use them.
To help, if you can answer yes to all of these items, then you definitely need to have an R&D Tax Consulting firm provide you with a free estimate of your tax credits.
Were you profitable in 2005, 2006, and/or 2007?
Is the total cumulative payroll for 2005, 2006 and 2007 in excess of $7.5 million dollars?
Is the company structure a C Corp? If so, you are OK. If an S Corp or partnership, do you have 5 or less shareholders? If so, you are OK.
If you answered yes to those 3 items, then you have an excellent possibility of having a high 5 figure credit and into the 6 or 7 figure credits for manufacturers with higher wage totals. The R&D Tax Credit is a wage based credit so the higher your total wages, the higher your credits.
Think about what your company can do with the extra cash in about 90 days.
Conclusion
In summary, the current credit crunch is hurting many companies. Fortunately the existing R&D Tax Credit can provide much needed cash quickly for all qualifying manufacturers. The refund can be used to help your cash flow or make an investment in your business to buy needed equipment or expand your capacity.
Seek out an R&D Tax Consulting firm to confirm that you qualify and to give you an estimate of your R&D Tax Credits. The sooner you do this, the sooner you'll have additional funds to invest in your company.
The authors are Karim Solanji, J.D., a Director with Paradigm Partners and Mark Lauber, VP of Marketing at Paradigm Partners. Paradigm Partners is a national tax consulting firm specializing in the R&D Tax Credit. Mark's email is MLauber@ParadigmLP.com and his phone number is (281) 558-7100. Our website is http://www.ParadigmLP.com
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