Tax Planning for Marine Manufacturers

The Big Idea
Both the R&D credit and the 199A deduction are incredible planning opportunities, enabling marine manufacturers to minimize their tax burden and have the opportunity to reinvest those dollars back in the business to fuel growth.

Research & Development Tax Credit
Interestingly, the Research and Development (“R&D”) Tax Credit is often dismissed by marine manufacturers as only pertaining to rocket scientists or chemists. However, the actual definition of what qualifies for the credit is much broader. Taxpayers of any size that design, develop, or improve products, processes, techniques formulas, inventions, or software are eligible.  For example, a boat manufacturer that designs a new boat model or improves the speed, handling, or efficiency of an existing model likely qualifies for this credit.  The R&D credit is now permanent as result of the 2015 PATH Act, and is an excellent planning opportunity for marine manufacturers that engage in product or process development.

3 Main Categories of Qualifying Expenses for Marine Manufacturers

  1. The primary expense is usually wages paid to employees that perform, support, or supervise R&D activities.  Take for example the labor involved in developing a new model:
  2. Companies can also include expenses related to supplies used or consumed in the R&D process as part of the R&D credit.  If the company builds a prototype seating arrangement or hatch for the new model, the fiberglass, resin, catalyst and core material related to that project can be included as well.
  3. Third party contractor expenses are also includible for the R&D credit.

Section 199A Deduction
The new Section 199A deduction allows for an additional 20% deduction for companies other than corporations.  This new deduction aims to address the rate differential between pass-through companies and C corporations.

Presenter: Ron Wainwright, Cherry Bekaert