Why the R&D Tax Credit Could Bring Back Made in the USA

Many firms are now revisiting the credit after recent policy changes made it easier to claim

When I buy something with a Made in the USA sticker on it, I get a warm, fuzzy feeling. Because let’s be honest – it’s not something you see much of nowadays. It’s not that we can’t offer compelling products. We just can’t get their prices down to compete with nations like China or India.

Though we don’t like to admit it, the things we enjoy, like our high American wages and a global supply chain, are also what make our products less competitive on the world stage. Coupled with uncertainty and price pressures from tariffs, these factors can make Made in USA seem like a lost cause.

There’s no magic bullet. But if we’re going to reshore production to our great nation, the most impactful thing any domestic manufacturer can do is take a serious look at the Section 41 R&D Tax Credit.

The R&D Credit has been around for over 40 years now. It was put in place because America started falling behind in innovation in the 70’s, exacerbated by the oil crisis, stagflation, and foreign (especially Japanese) competition. Although it’s evolved plenty over the years, one fundamental has never changed: its purpose is to support businesses that design or produce goods in the United States. Period.

Moreover, last year’s tax legislation has eliminated several barriers to claiming this incentive, and many manufacturers are finding that a second look at the credit can net them hundreds of thousands of dollars in refunds, even when it didn’t make sense before.

The cash infusion from a six-figure R&D credit claim can truly change the trajectory of a growing company. The benefits we’ve seen are numerous:

• A defense manufacturer was able to expand capacity and reshore production of components previously imported from China
• A small electronics assembler retained its senior engineers and maintained its ability to compete with large foreign competitors
• A producer of chemical detector membranes purchased better QA equipment to improve their performance
• A specialty glass coating developer increased its raw materials surplus to better weather pricing and tariff volatility

The above are just a few examples of how Congress originally intended these incentives to work for American businesses – as a vital tool to keep innovation and production domestic, while maintaining competitiveness internationally.

Today’s high-tech products also raise a relatively new yet growing concern: the security of our privacy and data. We have a massive overdependence on foreign manufacturers for key pillars of our technological infrastructure.

Consider that nowadays even light bulbs and thermostats are wired into your home network – the same network on which you share highly sensitive personal data. Our corporate environments have even more at stake, with all their foreign-made routers, access control systems, peripherals, cameras, displays, and smart lighting systems.

I don’t know about you, but I’d trust an American-made device to follow our laws and protocols much more than I would something made in China. Domestic manufacturers are also much more easily held accountable for malfunctions or breaches, which can have serious economic consequences.

From this standpoint, Made in the USA looks even less like a “could” and more like a “should”.

I’ll ask the question that’s probably on your mind right now: if this credit is so great and so important to our economy and cybersecurity, why isn’t every eligible company taking advantage of it? Based on my many conversations with business owners, it’s because they don’t know they qualify.

The term “R&D” brings to mind open-ended research without a clear application in mind. While that type of work can also qualify for the credit, most of the activities that qualify most for this incentive are precisely those that will make American products more competitive. And they’re what manufacturers do every day:

• Building and testing prototypes
• Automating manufacturing and inspection processes
• Evaluating the quality, performance, or manufacturability of alternative materials
• Developing control logic and firmware

The list goes on, but the point is the same. If you’re a manufacturer, it’s likely you have qualifying activities.