Unlocking Innovation Incentives for Michigan Businesses

For years, Michigan has been a hub for manufacturing, technology, engineering, and life sciences. Now, with the introduction of the new Michigan State Research Tax Credit, beginning in the 2025 tax year, businesses across the state—particularly small and mid-sized enterprises (SMEs)—have a fresh opportunity to reduce tax liability while fostering innovation.

This tax credit mirrors the well-established federal Research & Development (R&D) Tax Credit, offering companies financial incentives for investing in research, product development, and process improvements.

But what does this mean for business owners, and how should accountants and CPAs be advising their clients? Here’s a breakdown of what you need to know and why it’s crucial to explore this opportunity now.

What Is Michigan’s Research Tax Credit?

The new Michigan Research & Development (R&D) Tax Credit is designed to reward companies that invest in innovation. While Michigan previously lacked a dedicated R&D incentive at the state level, this new credit provides a refundable benefit, meaning eligible businesses can receive direct financial relief—even if they have little or no state tax liability.

The tax credit is expected to follow the principles of the federal IRC Section 41 Research Credit, which rewards companies conducting qualified research activities (QRAs) such as:

• Developing new or improved products, processes, or software
• Enhancing manufacturing techniques to improve efficiency
• Creating prototypes or conducting trial production runs
• Performing technical analysis, engineering, or testing

The credit is structured to ensure that companies investing in Michigan-based R&D benefit from the program, encouraging further innovation in the state.

Who Qualifies?

The biggest beneficiaries of this credit will be small and mid-sized businesses—companies that often don’t realize they qualify for R&D tax incentives. While large corporations have long leveraged federal R&D credits, this new Michigan incentive opens the door for entrepreneurs, startups, and growing companies across various industries.

Some of the industries that can likely qualify include:

• Manufacturing & Engineering – Developing new production methods, automation, or process improvements
• Software & Technology – Creating or improving software solutions, apps, or cybersecurity measures
• Architecture & Engineering Firms – Designing energy-efficient structures or innovative construction techniques
• Automotive & Aerospace – Advancing vehicle technology, materials, or safety enhancements

How Much Is the Credit Worth?

While Michigan’s exact percentage and calculation methods are still being finalized, the new credit will likely align with federal R&D tax credit methodology, which typically provides:

While Michigan’s exact percentage and calculation methods are still being finalized, the new credit will likely align with federal R&D tax credit methodology, which typically provides:

• A credit of up to 10–15% of eligible research expenses
• Eligibility for wages, contractor costs, materials, and supplies used in R&D efforts
• Refundable benefits, meaning even unprofitable startups may see a direct benefit

It’s important to note that the credit may be reduced and prorated as the state has only allocated $100,000,000 for all filers for the credit within the state, with preference afforded to businesses with less than 250 employees.

Combined with the federal R&D tax credit, Michigan companies could significantly reduce their overall tax liability, freeing up capital to reinvest in future innovation.

Why Accountants & CPAs Should Take Notice

For accountants and CPAs in Michigan, this new R&D tax credit represents an enormous opportunity to add value to your clients. Many small business owners remain unaware of these incentives, meaning proactive CPAs can position themselves as trusted advisors by helping clients unlock these valuable tax savings.

Key reasons why CPAs should prioritize this credit:

• Increase Client Retention – Bringing tax savings to clients strengthens relationships and solidifies your role as a go-to advisor.
• Generate New Business – Small businesses actively seek accountants who can guide them through complex tax credits.
• Reduce Tax Burdens for Clients – Helping clients lower their tax liability can provide immediate financial relief and improve cash flow.
• Enhance Advisory Services – R&D tax credits are often underutilized, giving proactive CPAs a competitive advantage in the market.

If you’re a CPA or financial advisor serving Michigan businesses, now is the time to educate your clients on this new tax-saving opportunity before they file their returns.

Navigating the R&D Credit Process: Why CTA Can Help

While the benefits of the R&D tax credit are clear, claiming the credit correctly requires specialized knowledge. The IRS and state tax authorities have strict documentation requirements, and failing to substantiate your claims properly could lead to audits, delays, or missed savings.

This is where CTA can help. Our team specializes in R&D tax credit studies, ensuring:

• Accurate qualification and calculation of your R&D expenses
• Proper documentation to withstand audits and IRS scrutiny
• Seamless integration with CPAs to maximize tax savings
• Support for businesses across all industries

We work directly with business owners, accountants, and CPAs to ensure no qualifying R&D dollar is left unclaimed. Whether you’re a company looking to reduce taxes or a CPA firm seeking expert guidance, CTA is here to simplify the process and maximize your benefit.

Take Action Now – Don’t Leave Money on the Table

With Michigan’s new Research Tax Credit now in effect, the time to act is now. Small and mid-sized businesses stand to gain the most, yet many will overlook or underutilize this benefit without proper guidance.

If you’re a business owner, don’t assume you don’t qualify—the R&D credit applies to far more industries than most realize.

If you’re a CPA, this is your opportunity to deliver real financial savings to your clients and expand your advisory role.

CTA is here to help you navigate this opportunity—reach out today to see how we can support your R&D tax credit claim!