One of the most under-utilized tax savings opportunities for companies in the plastics industry is the U.S. Credit for Increasing Research Activities (R&D tax credit).  The R&D tax credit rewards companies who invest resources in innovation, product development, mold design, new materials or resins, and process development/improvement.  In addition to Federal tax savings, over 30 states have a similar program that rewards companies for the development or improvement to its products or processes.

The types of activities that may qualify for the R&D tax credit include, but are not limited to the following:

  • Developing new part or product designs
  • Developing part-specific manufacturing processes
  • Developing new tool designs
  • Experimenting with new materials
  • Experimenting with automation techniques

There have been numerous recent developments that favorably impact the plastics industry, including, but not limited to:

  • Tax Reform has increased the net benefit of claiming the credit;
  • Eligible small businesses (companies with less than $50 million in sales) may offset the Alternative Minimum Tax (AMT) in 2016 and thereafter;
  • Recent treasury regulations have:
    • Expanded what qualifies for the credit;
    • Allowed for the costs of prototypes, pilot models, or externally-produced molds to be included as qualified expenditures, depending upon the taxpayer’s facts and circumstances; and
    • Allowed for taxpayers to elect a simplified method for claiming the credit.

Contact Information

Michael J. Devereux II, CPA, CMP, is a partner and director of Manufacturing, Distribution & Plastics Industry Services for Mueller Prost. Devereux’s primary focus is on tax incentives and succession planning for the manufacturing sector. He regularly speaks at plastics conferences around the country on tax issues facing the plastics industry. For more information, email or call 314.480.1223.