Can Electronics Companies Benefit from the R&D Tax Credit?

by | Jul 18, 2022 | Electronics, Tax Credits

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Electronics is one of the largest industries in the world and activities conducted within the industry rely heavily on research and development. To develop innovative projects, companies in the electronics sector must frequently overcome technological challenges and conduct complex R&D. This means that a significant portion of their production and manufacturing activities may be eligible for the R&D tax credit.

Does your Electronics Company qualify for the R&D Tax Credit?

A company may be eligible for an R&D tax credit if they conduct any kind of research and development to create innovative electrical solutions. The following are some examples of qualified activities for the electrical industry:

  • Developing new or improved electronic devices and equipment
  • Developing unique installation procedures and designing new electrical systems
  • Experimenting with new assembly or production processes to cut costs and increase efficiency

While some non-qualified activities include:

  • Modifications to production lines that do not involve technical uncertainties
  • Development focused solely on a product’s or packaging’s aesthetic qualities

Applying the Four-Part Test

According to IRS guidelines, a simple four-part examination can help decide which activities classify as qualified research.

  1. Permitted Purpose – Requires the purpose for research to develop a new or improved level of function, performance, reliability, or quality.
  2. Elimination of Uncertainty – Requires the development of a product to eliminate uncertainty and achieve the desired result.
  3. Process of Experimentation – A significant portion of the company’s development activity must demonstrate an experimenting phase such as a series of trials and errors aimed at evaluating potential methods in order to attain the permitted purpose.
  4. Technological in Nature – The process of experimentation must rely on the hard sciences such as chemistry, biology, engineering, or computer science.

How can KPT Consulting help?

Developing innovative electrical solutions takes a lot of effort and money. We at KPT recognize the value of scientific progress and are always willing to assist clients in the electrical industry in obtaining the R&D tax credit they deserve. For more information, contact us today!

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