How Manufacturers Can Benefit from the New Tax Law: Why the R&D Tax Credit is Worth Another Look

Part III: Why the R&D Tax Credit is Worth Another Look

By Caleb Robbins, CPA

In Part I of this series, we introduced the major incentives available to manufacturers under the One Big Beautiful Bill Act (OBBBA).  In Part II we explored how Qualified Production Property makes Cost Segregation even more impactful for domestic manufacturers.  Our final discussion will focus on a legislative change that puts the R&D Tax Credit back in the spotlight. 

IRS Removes a Major Impediment

For several years, claiming the R&D Tax Credit became a tougher business decision for many manufacturers.

The Credit itself didn’t change. It remained one of the most powerful incentives in the tax code, providing a dollar-for-dollar reduction in federal income tax liability, with many states offering additional credits that can significantly increase the overall benefit.

The problem was a separate tax rule that required businesses to spread, or amortize, many domestic research and development costs over five years rather than deducting them immediately. For companies investing heavily in innovation, that often meant paying more tax today while waiting years to recover those costs.  This caused many taxpayers to think twice about claiming the Credit. 

But the One Big Beautiful Bill Act (OBBBA) has changed the game.

Beginning with Tax Year 2025, manufacturers may once again immediately expense domestic research and development expenditures rather than amortizing them over five years. The repeal of mandatory amortization for domestic activities removes a significant hurdle that caused many businesses to question whether pursuing the Credit was worthwhile.

For manufacturers already investing in better products and better production methods, the economics are once again working in their favor.

The Biggest Misconception About the R&D Credit

Despite its name, the R&D Tax Credit isn't reserved for scientists in white lab coats.  In fact, many manufacturers qualify because they solve practical production challenges every day.

You may qualify if your team is working to:

• Develop new or customized products
• Improve manufacturing processes
• Increase speed, efficiency, or throughput
• Improve product quality, durability, or reliability
• Design and test prototypes
• Reduce waste or material usage
• Integrate automation into existing production lines
• Evaluate multiple design or manufacturing alternatives before selecting the best solution

Perhaps even more surprising, projects do not have to succeed to qualify. The Credit rewards the process of solving technical uncertainty, not just successful outcomes.

Qualified Expenses Include a Broad Range of Costs

Though an R&D Tax Credit study, manufacturers can recoup up to $0.10 for every identified dollar spent on qualified research. And those dollars can add up. 

There are 4 categories of qualifying expenses:

Qualified Expense	Manufacturing Examples
Employee wages	Wages of engineers, technicians, programmers, project managers, production supervisors and others directly involved in qualified activities
Supplies and materials	Prototype materials, test batches, molds, tooling, components consumed during testing
Third-party contractors	Outside testing, modeling, programming, or engineering services performed in the United States
Cloud computing costs	Certain cloud hosting expenses related to qualified development activities

Most manufacturers find the bulk of their expenses come from wages and supplies and materials.

Why Manufacturers Consistently Lead the Way

Manufacturers consistently claim more R&D Credits than any other industry because continuous improvement is built into the business. 

Whether you're reducing cycle times, improving ergonomics, redesigning a component, or automating a production process, you're doing exactly what Congress intended to encourage: investing in American innovation and domestic manufacturing.

Questions Worth Asking

If you're unsure whether your company qualifies, start with a few simple questions.

• Have you introduced a new product in the past few years?
• Have you improved an existing product or manufacturing process?
• Have you developed prototypes or conducted testing?
• Have you invested in automation or process improvements?
• Have projects required trial and error before arriving at a final solution?

If you answered "yes" to any of these questions, it may be worth taking a closer look at the R&D Tax Credit.  Boyer & Ritter can help. 

The Bottom Line

Throughout this series, we've explored how the OBBBA has created meaningful opportunities for manufacturers.

Incentives like Cost Segregation & the R&D Tax Credit allow manufacturers to recover capital more quickly, improve cash flow, reduce the after-tax cost of modernization, and reinvest those savings back into their businesses.

Every manufacturer's situation is different, and determining eligibility requires a thoughtful review of your operations, projects, and tax profile. The Boyer & Ritter team works closely with manufacturers to identify opportunities, evaluate potential benefits, and navigate the study process. 

If your company is investing in facilities, improving production processes, or developing new products, now is the ideal time to consider specialty tax incentives. The tax landscape has shifted, and manufacturers are in a strong position to benefit.

Caleb Robbins, CPA is a senior member of our Manufacturing Practice Group—contact him at crobbins@cpabr.com to discuss how R&D credits could apply to your facility.