Posted by on 02.01.24

Many companies that manufacture plastic injection molds do not realize that their business is filled with research and development (R&D) activities that qualify for valuable tax credits. Plastic injection molding companies produce parts for products and equipment utilized in virtually every industry; including commercial and industrial machinery, automotive, medical equipment, household products, electronics and more. The plastic injection molding industry is constantly changing as new technology, materials and techniques are introduced to the market. A great deal of research and development goes into not only the products but also the processes on a daily basis.  In recent years, protecting the environment went from an individual goal to a big business mission. Companies that can show they use eco-friendly practices and materials are likely to get business over those that don’t. One eco-friendly option being explored and becoming more and more popular is the use of bioplastics. This type of plastic is created from biodegradable plants such as corn, soybeans and flax. This process decreases the need to use fossil fuels and creates plastics that do not take years to break down. Eco-friendly options and processes are just one of the many daily activities being explored that can qualify for the R&D tax credits. 

The R&D Tax Credit

The R&D Tax Credit is a federal tax incentive designed to promote businesses that incur costs for technical work within the United States. The incentive allows businesses of all sizes, not just major corporations, to receive a tax credit for qualified expenses incurred for research and development. Introduced in 1981 to create jobs and spur technology in the United States, the R&D tax credit has been modified over the years to apply to a host of businesses in industries including manufacturing, construction, engineering and software development. In 2015,  the R&D tax credit was made permanent by the U.S. Congress and is now a dollar-for-dollar benefit against tax that qualified American companies can depend on.  Eligible costs include employee wages, cost of supplies, cost of testing and contract research expenses.

With recent tax reform, the R&D tax credit still remains one of the few ways for many businesses to significantly cut their tax bill. Opportunities to claim the Research and Development (R&D) tax credits for the plastic injection molding industry are abundant. The experts at Tax Point Advisors can help you capture your full R&D tax credits for qualified activities and manage the documentation process.

The activities and associated expenditures of a company can qualify for the R&D tax credit if the activities meet the four-part test established by the IRS:

1. Qualified Purpose – The purpose of the research must be to create a new or improved product, process, or formulation, resulting in increased performance, function, reliability or quality.
2. Technological in Nature – The research must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
3. Process of Experimentation – Experimentation can be demonstrated through test batches, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.
4. Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology. 

Examples of plastic injection molding activities and projects most likely to contain qualified research:

• Designing and fabricating plastic injection molds and tooling
• Building and testing prototype plastic injection molds
• Experimenting with different materials
• Developing new or improved processes and engineering
• Integrating automated systems, 3D printing, and/or the use of robotics
• Developing programs to maintain these automated systems
• Developing means of waste reduction 
• Experimenting with greener eco-friendly materials
• Evaluating results with alternative temperatures, pressures, and injection times over various test runs
• Testing and evaluating cavity layouts, runner designs, and plastic flow
• Optimizing pack and hold times and gate seals
• Conducting structural analyses of injection molded components
• Assuring quality through inspections and non-destructive testing

Many of the activities conducted by plastic injection molding companies qualify for the R&D tax credits, and the companies conducting these qualified activities can benefit greatly from these tax incentives. Tax Point Advisors currently partners with some of the most forward-thinking companies in the industry, and plastic injection molding companies look to our experience to take full advantage of the available credits in the most effective way. 

Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and their clients throughout the U.S. To learn more about R&D tax credits from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.