Federal and state research and development (R&D) tax credits are available to eco-friendly fashion manufacturers throughout the country.

Eco-friendly fashion designers and manufacturers are working hard to not only make you look good, but to do good for the planet too. By producing sustainable fashion products, these manufacturers are transforming the fashion industry.

Innovation can be a costly though, so it’s important that these enterprising fashion designers take advantage of R&D tax credits.

What are R&D Tax Credits?

A research & development (R&D) tax credit is a tax incentive that rewards companies for conducting R&D in the United States. Billions of dollars of Research & Development Tax Credits are available to businesses for work they have already done.

These tax credits directly reduce a company’s tax liability. If your company is under five years old and making less than $5 million in revenue, you can use the credit to reduce your payroll tax.

Companies older than five years or making more than $5 million in revenue, can apply the credit toward the business income tax.

Can Eco-Friendly Fashion Manufacturers get R&D Credits?

Yes. Just as there are R&D tax credits for eco-friendly concrete manufacturers, there are incentives for eco-friendly fashion manufacturers to continue creating new, sustainable products as well.

There is a short test that you must pass to determine if your company qualifies for the credit.

The Qualification Test

  1. Developed a new product or process or improved upon existing functionality?
  2. Dealt with some form of uncertainty in the development process (appropriateness of design, method used, etc.)?
  3. Utilized a process of experimentation to eliminate uncertainty (modeling, prototyping, trial and error or other testing)?
  4. Conducted experimentation which relied on engineering, biological, physical or computer science?
  5. Employed all or a portion of your workers within the United States?

Did you answer these question in the affirmative? Congratulations, you qualify for a federal R&D tax credit.

Do States Offer R&D Tax Credits?

Yes, there are many states offer an R&D tax credit to inventive companies. Bear in mind that while most state R&D programs are greatly influenced by the federal program, each has unique traits. You should always review your state’s guidelines prior to applying.

How Much is an R&D Tax Credit for Eco-Friendly Fashion?

The federal R&D tax credit can range from 7-10% of your qualified research expenditures (QRE). QRE include:

  1. Salaries of W-2 employees dedicated to R&D
  2. Cost of disposable R&D supplies
  3. 65% of fees paid to US-based R&D contractors

Don’t forget that you could recoup well over 10% of your QRE depending on where your company is located. R&D programs differ from state to state, so you could recoup as much as 20% of your QRE. Some states, like Pennsylvania and New Jersey, even like you monetize your credit.

R&D Tax Credits for Eco-Friendly Fashion: In Review

R&D tax credit provides wonderful opportunities for eco-friendly fashion manufacturers in the US. With R&D tax credits, a company can reduce a its tax liability. Some state R&D tax credits can even be monetized for profit.

With the ability to recoup a portion of QRE, these companies can re-invest in new product development or other areas. Contact the team at Bowers R&D Associates today and send less to the IRS.

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