Background:
Since Congress created the Research and Development (R&D) credit in the 1980s, it has been an essential tax strategy for companies investing in innovation — providing much-needed support to offset R&D expenses.
Prior to 2022, companies could deduct these expenses in the year paid or elect to amortize them over 60 months. However, a provision included in the Tax Cuts and Jobs Act of 2017 — that didn’t take effect until January 2022 — required businesses to capitalize and amortize these expenses.
This change has been devastating for businesses that invest heavily in innovation. No longer able to write off these expenses immediately, many organizations struggle to maintain cash flow. In some cases, it even threatens business continuity.
While congressional efforts are underway to reverse the requirement to amortize research and experimental expenses, businesses can claim the R&D tax credit to generate tax savings in the meantime.
Challenge:
An International Organization for Standardization (ISO) certified manufacturing company specializes in machining high-tolerance plastics and metals using computer numerical control (CNC) technology. With 96 employees and an annual revenue of $11 million, the company invests heavily in R&D and has incurred roughly $1 million in qualified research expenses.
This manufacturing company had a unique opportunity to claim the R&D tax credit because companies can claim the credit on costs related to implementing ISO to improve processes and quality in their businesses.
Approach:
MGO leveraged its extensive knowledge of R&D tax credits to thoroughly analyze the company’s R&D activities — including implementing continuous improvement and process improvements to streamline quality controls.
By accurately documenting all qualifying expenses and ensuring they align with the four-part test, MGO was able to help the client maximize their R&D credit benefit.
Value to Client:
With MGO’s help, this company successfully claimed the R&D credit — resulting in a net credit benefit of $90,000 in a single year, including federal and state tax credits.
This strengthened the company’s market position by enabling it to reinvest in research, maintain its ISO certification, and improve its ability to fund further innovation, contributing to its long-term competitiveness in the industry.
Your Trusted R&D Tax Credit Advisor
MGO’s tax professionals have more than 30 years of experience helping you document, file, and defend tax credit claims.
Contact MGO today for a complimentary R&D tax credit eligibility analysis to determine if this tax incentive can help fuel innovation and growth in your organization.