R&D tax credit opportunities available for the hardware industry

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.

Examples of applicable activities within the hardware industry are listed below.

How much can a hardware company save with R&D tax credits?

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 can save approximately 7%–10% of annual R&D costs for federal tax 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.

The design, testing, and manufacturing of these products could all potentially qualify for the credit.

Some examples of credits claimed include:

• Heat sink manufacturer with $15 million in revenue generating a $900,000 credit
• Software security and manufacturing firm with $20 million in revenue generating a credit of $235,000
• Medical start-up with $0 in revenue generating a $250,000 credit

What activities qualify for the R&D tax credit within the hardware industry?

The hardware industry can be simplified into the following categories: engineering and design, testing, and manufacturing.

Engineering and design

• Design of components used in super computers — chips, circuit boards, and more
• Medical devices, such as braces, tools, and specialized equipment
• Heat sinks used to cool components in complex or high-speed processor applications
• Display modules in aircraft and other aviation applications

Testing

• Performance batch testing for new components for a computer manufacturer
• Stress, heat, and other mechanical testing to verify the component meets performance standards for the application

Manufacturing

• Process design to accurately and efficiently produce new components and hardware
• Design improvements to an existing line to increase through-put of the production line
• Evaluation and testing of new specialized equipment to increase the efficiency of a facility’s production line

Which expenses qualify for the R&D tax credit?

The R&D credit may be a highly beneficial opportunity for companies in the hardware industry. The tax savings provided from the credit can be used to invest in new equipment or hire highly technical personnel.

Examples of qualified research expenses