If your business makes a unique product, it’s eligible for a tax incentive called the research and development (R&D) tax credit. Sound simple? That’s because it is.
The R&D tax credit exists to incentivize innovation within U.S. companies of all sizes. Most companies, particularly small businesses, qualify for the tax credit but don’t realize it. There’s a misconception that venture-backed startups and software companies are leading innovation in this country, but that’s simply not true. We’ve helped small businesses like beauty and fashion brands, hardware companies and accessories labels get the tax credits they deserve even if they don’t yet turn a profit. Why? Each company makes a unique product.
If your company has created a truly unique product, it means you’ve done the research, development and innovation needed to qualify for the tax credit. Imagine a company that makes and sells scented candles. There’s numerous ways they can create a new and unique product to differentiate from competitors. They could develop a new kind of wax or wick that burns longer— that’s R&D. They could use a new chemical compound to create a new scent— that’s innovation, too. If all they’re doing is changing the candle’s color, that likely won’t qualify. Changing the design or aesthetics alone usually doesn’t involve creating a unique characteristic. Unique products are often developed in order to solve a problem
If your business makes a unique product, it’s eligible for a tax incentive called the research and development (R&D) tax credit. Sound simple? That’s because it is.
The R&D tax credit exists to incentivize innovation within U.S. companies of all sizes. Most companies, particularly small businesses, qualify for the tax credit but don’t realize it. There’s a misconception that venture-backed startups and software companies are leading innovation in this country, but that’s simply not true. We’ve helped small businesses like beauty and fashion brands, hardware companies and accessories labels get the tax credits they deserve even if they don’t yet turn a profit. Why? Each company makes a unique product.
If your company has created a truly unique product, it means you’ve done the research, development and innovation needed to qualify for the tax credit. Imagine a company that makes and sells scented candles. There’s numerous ways they can create a new and unique product to differentiate from competitors. They could develop a new kind of wax or wick that burns longer— that’s R&D. They could use a new chemical compound to create a new scent— that’s innovation, too. If all they’re doing is changing the candle’s color, that likely won’t qualify. Changing the design or aesthetics alone usually doesn’t involve creating a unique characteristic. Unique products are often developed in order to solve a problem
Our client Alleyoop is a perfect example of this. The makeup brand creates beauty products with a focus on sustainability, and that’s where the innovation happens. Alleyoop found new ways to make their products sustainable by creating sustainable packaging, reducing packaging waste and making their production process more efficient. Ardius was able to get them a $223,000 R&D tax credit for these activities.
Another example is Tower 28, a beauty company we work with. The business owner, Amy, dealt with sensitive skin her whole life and was frustrated by the limited beauty product options available to her. She created a line of non-toxic, vegan and cruelty-free beauty products without ingredients that irritate the skin. To do so, Tower 28 relied on research and development activities to identify new ingredients, remove harmful ingredients and manufacture its products. This innovation qualified them for an R&D tax credit.
Taxes can be confusing and complicated, but the R&D tax credit is surprisingly simple. Does your company make a unique product? Then it’s entitled to the tax credit. Our team of CPAs can work with your business to get your credit year after year. Contact us today to learn how Ardius can help.
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