By: Nina Desai | 08/06/26
Key Takeaways
For many manufacturers, innovation doesn’t happen in a laboratory. It happens on the production floor every day.
Whether teams are improving product quality, reducing waste, increasing throughput, testing new materials, or implementing automation technologies, manufacturers routinely solve complex technical challenges. Yet, many companies continue to overlook one valuable incentive designed to reward these efforts: the Research & Development (R&D) Tax Credit.
In a recent episode of Beyond The Ledger, Bennett Thrasher’s Shardae Layfield sat down with R&D tax credit specialists Nina Desai and Julie Hagan to discuss how manufacturers can identify qualifying activities, maximize available credits, and avoid common misconceptions that leave money on the table.
The Biggest Misconception About R&D Tax Credits
One of the most common reasons manufacturers miss out on R&D tax credits is the belief that qualifying research only occurs in a formal laboratory setting.
According to Desai, that’s far from reality.
Manufacturers regularly encounter technical uncertainties that require testing, evaluation, and problem-solving. Activities such as improving production processes, enhancing product performance, reducing defects, or increasing efficiency may all involve qualifying development work.
Simply put, if your team is working through technical challenges and experimenting with solutions, you may already be conducting eligible
R&D activities.
Manufacturing Activities That Often Qualify
Many business owners assume R&D credits only apply when developing entirely new products. In reality, numerous day-to-day manufacturing initiatives may qualify.
Common examples include:
Importantly, a project does not need to result in a patent or groundbreaking invention to qualify. The focus is on the technical work performed and the experimentation required to achieve the desired outcome.
Process Improvements Can Generate Valuable Credits
Some of the most overlooked opportunities involve improving manufacturing processes rather than changing finished products.
For example, manufacturers may experiment with:
If employees are evaluating alternatives and testing approaches to overcome technical challenges, those efforts may satisfy R&D credit requirements, even when the final product remains unchanged.
The innovation lies in solving the problem.
How Advanced Manufacturing Technologies Create New Opportunities
As manufacturing becomes increasingly technology-driven, R&D opportunities continue to expand.
Companies investing in the activities below often encounter significant technical uncertainties during implementation:
Integrating these solutions into existing production environments typically requires programming, calibration, testing, and refinement. These activities frequently involve the type of experimentation the R&D tax credit was designed to encourage.
Understanding the Difference Between Routine Work and Qualifying Research
Not every manufacturing improvement qualifies for the credit.
A key distinction is whether employees are attempting to resolve a technical uncertainty through experimentation.
Routine production work generally follows established procedures with predictable outcomes. Qualifying R&D activities occur when a company must evaluate alternatives because the solution is unknown at the outset.
Questions that may indicate qualifying activity include:
When technical teams are exploring answers to questions like these, they may be engaged in qualifying R&D work.
Hidden Opportunities Manufacturers Frequently Miss
Many organizations overlook activities that generate substantial credits simply because they don’t recognize them as research and development. Some of the most commonly missed opportunities include:
Tooling Development
The design and modification of molds, dies, fixtures, jigs, and specialized production equipment often involve extensive technical problem-solving and experimentation.
Material Testing
Evaluating alternative materials for durability, performance, manufacturability, or cost-effectiveness may qualify when technical uncertainties exist.
Prototype and Pilot Production
Testing concepts through prototypes or pilot runs frequently creates eligible development activities before full-scale production begins.
Scaling Manufacturing Processes
Moving from concept to commercial production often requires process refinement, and continuous technical improvements that may support a credit claim.
Customer-Driven Innovation May Still Qualify
Manufacturers that produce custom products sometimes assume client work is excluded from the credit.
However, customer-driven projects can qualify when companies must solve technical challenges to meet unique specifications.
If engineering teams are developing new manufacturing capabilities, testing materials, refining designs, or overcoming production obstacles to satisfy customer requirements, those activities may still meet R&D criteria.
The determining factor is not who requested the work, it’s whether technical uncertainty and experimentation were involved.
Documentation Is Critical
Even when qualifying activities exist, inadequate documentation can weaken an R&D tax credit claim.
The good news is that many manufacturers already possess much of the information needed to support eligibility, including:
Creating a consistent process for identifying qualifying projects and tracking employee time throughout the year can significantly strengthen credit claims while improving audit readiness.
More Than a Tax Benefit
The strongest R&D tax credit programs don’t simply reduce taxes, they help fund future growth.
Manufacturers frequently reinvest realized savings into:
In an increasingly competitive manufacturing environment, these credits can provide valuable resources to support innovation and long-term expansion.
Don’t Assume You’re Missing Out
One of the most important takeaways for manufacturers is that R&D often looks very different than many companies expect.
If your team is solving technical problems, improving processes, evaluating new technologies, testing materials, or developing new production capabilities, there is a strong possibility you’re performing work that may qualify for valuable tax credits.
The first step is conducting an R&D assessment with advisors who understand manufacturing operations and can identify opportunities that might otherwise go unnoticed.
Many companies are surprised to discover they’ve been leaving significant credits on the table for years.
FAQs
Can process improvements help manufacturers claim valuable R&D tax credits?
Yes. Manufacturers often qualify for R&D tax credits when they improve production processes, reduce waste, increase efficiency, or solve technical challenges through testing and experimentation. Even if the finished product doesn’t change, process optimization projects may qualify when technical uncertainty exists and multiple solutions are evaluated.
Do manufacturers need laboratory research to qualify for R&D tax credits?
No. A common misconception is that qualifying research must occur in a laboratory. In reality, many eligible R&D activities take place on the manufacturing floor. If your team is experimenting with new materials, production methods, designs, or processes to overcome technical challenges, those activities may meet the requirements for the federal R&D tax credit.
Can automation and robotics projects qualify for R&D tax credits?
Yes. Leveraging automation, robotics, machine vision, artificial intelligence, and other advanced manufacturing technologies often involves programming, calibration, testing, and refinement. These technical activities frequently satisfy the experimentation requirements needed to qualify for R&D tax credits.
Does custom tooling development count toward manufacturing R&D tax credits?
It can. Designing or modifying molds, dies, fixtures, jigs, and specialized production equipment often requires technical problem-solving and experimentation. When manufacturers develop custom tooling to address engineering or production challenges, those activities may qualify for valuable R&D tax credits.
Can material testing qualify for R&D tax credits?
Yes. Evaluating alternative materials, designing products or components with novel materials, improving performance, and testing manufacturability may qualify when manufacturers are resolving technical uncertainty through a process of experimentation. Product improvements and material testing are among the most commonly overlooked R&D tax credit opportunities.
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