R&D Tax Credits for the Tool and Die Industry

R&D Tax Credits for the Tool and Die Industry

Posted by William Mehi on 05.01.18

Tool and die producers are a class of machinist and engineers in the manufacturing industries who create jigs, fixtures, molds, gauges, dies, and many other tools used in manufacturing processes. A tool and die manufacturer that develops made-to-order parts and tools, is usually not aware that the IRS has enacted tax changes that can help them recover cash based on activities that most consider day to day operations. In order for many tool and die manufacturers to succeed, additional efforts and problem solving is needed to meet the technological advances required by their clients.  The need for advancements in the industry as a whole has made companies spend more time researching new techniques, improving manufacturing processes or developing and testing prototypes; all of which are classed as research and development, or R&D.  Efforts made to design and develop new products and manufacturing processes for improved performance and efficiency in the tool and die industry can qualify for research and development tax credits. A tax credit is an immediate source of capital, as well as a significant reduction to any current or future federal and state tax obligations.

Originally enacted into law in 1981 as a way to keep companies in the United States competitive in the global market, the research and development tax credit is one of the most cost effective tax credits available to taxpaying employers and shareholders. Your tool and die company may be eligible to receive a significant tax credit and in some cases, refunds for these qualified R&D tax credits. This is a permanent tax benefit and a dollar-for-dollar tax savings. The R&D tax credit is not just for new inventions. The R&D credit can be taken advantage of by any company that develops, makes or improves products, software and/or processes.

How to qualify for R&D

A claim must meet four criteria to be eligible for the credit:

  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. Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology. 
  4. Process of Experimentation – Experimentation can be demonstrated through prototypes, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.

Your CPA or R&D tax credit experts at Tax Point Advisors, can easily help you determine whether your tool and die activities meet the criteria of the four part test by conducting a free assessment.

What expenses qualify?

  • Salaries: For those who directly work on the innovation
  • Legal Fees
  • U. S. Based Contractor Fees
  • Supplies

Find Out if Your Activities Qualify

Unfortunately, many manufacturing businesses assume that R&D is only done by scientists wearing white coats in laboratories and therefore miss out on the opportunity to make R&D tax claims, failing to realize that activities conducted to support the needs of their clients could be categorized as research and development. 

Your company is in a position to take advantage of the credit if you do any of the following:

  • Develop, improve, or test new concepts and technology
  • Create new, improved or more reliable products, formulas or processes
  • Automate, streamline or improve internal processes
  • Develop or improve production, manufacturing processes, software or hardware
  • Create prototypes or models, including computer generated models
  • Develop improved or new jigs, fixtures, dies, tools or gauges
  • Attempting the new use of materials and compounds

Download our free e-book: The Manufacturer's Guide to R&D Tax Credits

If you think your company might be performing work that qualifies for the R&D tax credit, don’t let the potential tax savings go unclaimed. Tax Point Advisors has the experience and knowledge to assist you and your company to identify the daily activities that are already taking place to help get you the best possible credit. 

Tax Point Advisors works with small or large businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.

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