Businesses in the apparel and textile industry are regularly developing and manufacturing new products, materials and processes in order to keep up with changing trends and their competition. Staying on top of these shifts requires a good amount of time, money, and research in order to develop products that match the current market and its requirements.
Because so many of these companies already do these activities on a daily basis to stay relevant amongst their competitors, they may not know they can earn research and development tax credits for the work they are performing.
How Can Textile & Apparel Companies Qualify For These Credits?
The research and development tax credits are incentives for apparel and textile companies created by the government to encourage businesses to take risks and undergo innovation in their industries. These credits directly reimburse business activities and resources that were utilized during this research. In order to qualify, businesses must pass the 4-part test.
The 4-part test states that in order for companies to receive R&D tax credits, the activities they perform must:
- Improve the quality, function, or reliability of a process or product
- Identify and then remove any uncertainty of a product or process
- Involve a systemic process
- Be technological in nature
What Types of Activities Would Qualify Apparel And Textile Companies?
Within the apparel and textile industry, there are a wide range of activities that can apply for R&D tax credits, including:
- Researching materials in order to make them last longer
- Testing the advancement of clothing moisture management
- The construction of dye formulas, fabrics, waterproof clothing, and material changing technologies
- Inventing smart clothing that can prevent stains and remove odors
- Innovation in fiber, yarn, and other apparel and textile materials
- Testing and developing better weaving materials
Next Steps For Claiming These Credits
So what are the next steps if your company has performed activities you believe would be considered for these R&D state credits?
The first steps would include hiring a team of tax professionals to perform an analysis to calculate the actual cost of research and development, provide assistance with all tax forms and return preparation, document the eligible expenses and activities, and assist and manage exams and any appeals.
If you feel like your business can benefit from the services that our tax specialists at National Tax Group offer, give us a call at (561) 257-3436 for your free assessment.