An Underutilized Resource for Boiler Manufacturers: The R&D Tax Credit

Taxes represent a large sunk cost for boiler manufacturers, but the R&D tax credit offers savings.

Boilers are indispensable to much of the American economy, ranging in application from electricity generation to food processing, to the manufacturing of paper goods. Boiler manufacturers need a way to save money and inject capital back into their operations, so they can continue to drive our economy forward. Beyond the value add for businesses, these funds can be applied to other important expenses, like investing in continuing education or putting down payments on a new facility. Following the revitalization of the Research & Development Tax Credit (“R&D Credit”), boiler manufacturers have a renewed opportunity to receive a substantial benefit based on their work.

While many boiler manufacturers are familiar with and have previously taken the credit, these businesses could be overlooking substantial value available to them through overlooked nuances of the provision. In doing this, they are possibly leaving six figures worth of credits on the table. Boiler manufactures need to ensure that they are maximizing the value of the credit and should partner with a reputable provider to confirm their claim.

The R&D Credit, as described in Section 41 of the Internal Revenue Code, is a tax credit that benefits companies incurring R&D expenses in the development of new or improved products or processes. For boiler manufacturers, that means that the time and money spent on developing a new boiler or boiler components can generate new income for the business, as opposed to solely being a research expense.

Activities like the below can all qualify a business for the R&D credit:

• Redesigning existing boilers to increase efficiency
• Trial and error testing of components’ durability & heat resistance
• Developing software to facilitate component design
• Custom development of new boilers for clients

Missing Potential: How One Business Found it was Underclaiming the R&D credit 

Many businesses may be underclaiming the R&D credit without even realizing it. For example, there are a wide range of expenses that businesses incur that could qualify, but many businesses claiming the credit only account for engineer wages.

One such case comes from a 25-employee boiler manufacturer based in Ohio. The manufacturer already generates an R&D credit worth roughly $250,000 yearly through their existing product development and engineer wages. Their credit amount stayed stagnant year over year, and they believed that they were was maximizing the value of the credit.

After some years, the manufacturer was made aware of updates to the credit, and decided to partner with an R&D provider to ensure they are receiving the full value of the credits post update. After working with alliantgroup, whose experts have worked in the industry, alliantgroup found that the company was claiming for its engineers but not including everyone’s time who worked on qualifying projects. For instance, they did not account for the production team’s time spent implementing and testing the engineers’ designs, various ancillary material costs, and the time supervisors spent overseeing projects, including the CEO himself. By adding that time in, alliantgroup was able to find additional expenses that qualified for the credit, which raised the amount that manufacturer received from $250,000 up to $320,000.

Through one simple inclusion, the credit’s value changed by almost six figures, underscoring how important it is for R&D providers to follow the latest guidance. With six-figure refunds on the line, boiler manufacturers should partner with a reputable provider to claim the credits their business is entitled to.