Innovation is the backbone of manufacturing, and the government rewards it. Federal and state research and development (R&D) tax credits offer meaningful savings for companies investing in process improvements, new products, and efficiency gains. With recent legislative updates and Nebraska-specific incentives, strategic planning can make a big difference in the value you capture. 

What is the federal R&D credit?  

The federal R&D credit allows manufacturers and other businesses to claim a dollar-for-dollar reduction in tax liability for qualified research expenses. These often include wages for employees involved in research activities, supply costs, and certain contracted services. For many manufacturers, the credit provides a meaningful way to reduce tax costs while funding innovation and process improvements. 

Recent Legislative Updates 

The "One, Big, Beautiful Bill” brought back immediate expensing for domestic R&D activities. Previously, businesses had to spread these costs over five years, which delayed the tax benefit. Now, companies can deduct qualified R&D expenses right away, improving cash flow and freeing up funds for continued innovation. For manufacturers investing heavily in research and process improvements, this change makes R&D spending even more worthwhile. 

Nebraska’s State Credit Advantage 

Nebraska offers a complementary R&D credit that can be applied in addition to the federal program. Depending on your company’s size and location, the state credit may provide refundable benefits, further boosting cash flow. When paired with the federal credit, this creates a meaningful opportunity for manufacturers to offset costs and reinvest savings back into their operations. 

Where do R&D credit claims often go wrong? 

While the credits can be valuable, several common mistakes can limit or even disqualify claims: 

• Improper Cost Classification: Not all expenses qualify; misallocations can lead to reduced credits or IRS scrutiny. 
• Lack of Documentation: Without detailed records, it’s difficult to substantiate claims during an audit. 
• Missed Eligible Activities: Some qualifying efforts are overlooked because they aren’t tied directly to product development. 
• Audit Exposure: Poorly supported claims increase the risk of penalties. 
• State Issues: Nebraska and several other states have specific employment verification procedures if you choose to take advantage of the complimentary state portion of the R&D credit. 
• Timing Issues: Failing to plan may mean missing opportunities in the year expenses are incurred. 
  

Planning Strategies to Maximize R&D Credits 

To fully leverage R&D credits, manufacturers should take a proactive approach: 

• Maintain thorough documentation of expenses and employee activities tied to research. 
• Engage advisors early to ensure accurate cost classification and timely credit claims. 
• Incorporate credits into cash flow planning to better align innovation spending with financial resources. 
• Leverage both federal and state programs together for maximum benefit. 
  

Strengthen Your R&D Strategy with Lutz 

R&D credits can be a powerful tool for manufacturers, but only if they’re planned and documented effectively. At Lutz, our tax professionals help you identify qualifying activities, align credits with your innovation goals, and develop a proactive strategy that integrates both federal and state benefits. 

Whether you’re exploring eligibility or refining your existing process, our team can help you turn R&D investments into long-term tax savings. Contact us to learn more.