With the world becoming increasingly automated, various industries are focusing heavily on improved, faster, and more cost-effective hardware solutions for their products and customers. This requires innovation and creating solutions to enhance computing speed and capabilities.
However, many in the hardware industry are unaware that developing new or improved products or processes can result in R&D tax incentives that can provide significant savings.
To help break down this complex topic, here’s a list of common questions hardware companies have about the R&D credit.
What Is the R&D Tax Credit?
The R&D tax credit is a dollar-for-dollar tax savings that directly reduces a company’s tax liability. There’s no limitation on the amount of expenses and credit that can be claimed each year.
For a thorough look at the federal R&D tax credit—from recent legislative changes to required documentation—please see the Moss Adams Guide to Claiming the Federal R&D Tax Credit.
Examples of applicable activities within the hardware industry are listed below.
How Much Can a Hardware Company Save with R&D Tax Credits?
There’s no limit to how much a company can claim for the R&D credit. However, there are several factors that can impact tax savings. The amount of tax credit available depends on how many qualified costs a company incurs during a specific tax year. See below for details on qualified costs.
In general, a company has the ability to save approximately 7%–10% of annual R&D costs for federal purposes. The savings could be even greater if that company has an income tax filing obligation in a state that also offers an R&D credit.
There are a wide range of companies that can qualify for the R&D credit by designing and manufacturing hardware. Examples include computer boards and chips, self-driving cars, heat mitigation solutions, and many more.
The design, testing, and manufacturing of these products could all potentially qualify for the credit.