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Plastic was invented and introduced in 1862 at the London International Exhibition to no critical acclaim. This first version of plastic, called Parkesine, was created as a waterproof substitute for shellac. It didn’t enjoy widespread adoption or advancements until WWII when wartime efforts required lighter materials to build planes, and pushed plastic innovations to the next level.
Today the plastics industry touches nearly every aspect of modern life, from healthcare applications like syringes and tubing to communication devices such as cell phones and hearing aids. Plastics and polymers lie at the center of advancement in almost every industry, replacing traditional, more expensive, and heavier materials like metal, glass, wood, and ceramics.
The plastics industry is worth $580B in the U.S. alone and is expected to increase significantly in the next decade. Plastic and polymer manufacturers’ activities, from extraction to processing to experimenting with biodegradable plastics, are all eligible for research and development (R&D) tax credits.
Learning to identify qualifying research and development activities helps manufacturers, business owners, and CPAs as they plan, document, and produce groundbreaking products.
From extraction to recycling, many activities and projects are likely to be classified as qualified research activities. As you read through the examples, remember that activities don’t need to be successful to qualify. Time and effort are deductions companies can take, even if the companies are still working out solutions.
IRS Section 41(b) describes qualified expenses as the expenditures a company accrues while conducting research activities on qualified projects. They fall within four categories:
Substantiating your R&D tax credit claim requires careful documentation. To prove that employee wages, supply costs, third-party contractors, cloud storage, etc., were part of the research and development process, taxpayers must provide extensive proof. Beyond financial statements, they should also include expense reports, payroll, project lists, testing reports, customer contracts, and supporting documentation like WIP reports.
The plastics industry has embraced physical location clustering to reduce the strain on its supply chain. Locating manufacturing facilities close to oil production also facilitates innovation. Companies can tap into similar customers and partners while working with state governments that are friendly toward their industry. States like Texas, Ohio, Pennsylvania, and Illinois are current examples of oil and plastics hubs.
The plastics industry has come a long way since its introduction as Parkesine in 1862. Today’s plastics companies are working on next-generation products that can be broken down by bacteria, worms, or sunlight. Concerns about single-use plastic (e.g. toothpaste tubes, garbage bags, water bottles, disposable food containers), environmental sustainability, and pollution will change how plastic is used in the next decade.
Recycling and biodegradability will definitely play an outsized role in the future of plastics manufacturing.
After collecting the proper documentation needed to calculate the credit, you need to include form 6765 with your annual federal income tax return to claim the R&D tax credit. Although the IRS provides the instructions for companies to file this form, business owners may still be confused.
Many companies believe that they need to pay taxes to claim the credit. Qualified Small Businesses (QSBs) can use R&D credits to offset payroll taxes, even if the company is in losses. Even if your company is in losses, you can still carryforward the credit for 20 years until you have regular tax liability.
The R&D tax credit is one of the most complex sections of the tax code. Even CPAs outsource their clients’ R&D claims to experts like Strike. See how much your company could get back with our R&D calculator, and contact one of our tax specialists today to get started.
