The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayer’s business
- Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
- Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include U.S. employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can utilize the credit against $250,000 per year in payroll taxes.
The Guidance
Scott Gottlieb, a physician and commissioner of the FDA, has stated that in addition to the transparent process, regulations for future submissions will allow manufacturers to bring their innovations to market more efficiently. With so many transformative medical technologies in the midst of a breakthrough on the market, manufacturers needed this guidance to help them progress through the time consuming process of FDA approval faster and more easily. The guidance includes device design, software workflow, material controls, post-processing, process validation and acceptance, quality data, and device testing considerations. All expenses related to a new product or process, including testing, are R&D tax credit eligible.
Conclusion
The new guidance outlined for the consideration of new 3D printed medical devices sets up parameters and regulations for manufacturers who want to get their 3D printed products FDA approved. The faster these approvals happen, the more the medical field can advance. The guidance requires a complete product, process, and testing framework that is ideal for optimizing R&D tax credits.
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Charles Goulding and Rafaella July of R&D Tax Savers discuss the FDA’s issued guidance on 3D printed medical devices.