Contract Manufacturing R&D Tax Credits

Even the material expenses associated with tooling and die casting might be considered an R&D investment.

The majority of contract manufacturers feel that they are not eligible to claim the R&D tax credit since they're not engaged in either final component design or are solely responsible for manufacturing, although this is not accurate. Contract manufacturers frequently qualify for the R&D tax credit because they are building repeatable and extremely complicated manufacturing processes that need substantial testing. Along with the time spent by businesses creating repeatable, high-quality manufacturing processes, activities like prototyping, first items, and component validation are also eligible for credit. There are additional chances to qualify raw material and component expenditures for these sorts of initiatives, allowing firms to offset the significant investments they have made and will make in the future.

Research Activities for Contract Manufacturers

Process development based on the final part design
Component evaluation and change to maximize manufacturability
Utilization of CAD software
Prototypes and first items are subjected to testing and validation
Creation and alteration of three-dimensional design models
Automated manufacturing cell development
Customized tooling, fixtures, and dies
Experimentation with the goal of increasing product output and decreasing manufacturing time
Development aimed at modifying regulatory requirements for manufacturing processes or goods
Programming CNC machines
Activities involving quality assurance and the establishment of testing protocols
Conceptualization and creation of one-of-a-kind packaging solutions
Case Study

Contract Manufacturing: A Case Study in R&D

This contract manufacturer focuses on the design and implementation of extremely innovative and bespoke manufacturing procedures for medical devices. Customers bring in previously unmanufactured ideas and, before engaging the firm for contract manufacturing services, seek proof that the business is capable of creating the product.

Qualification in R&D

Medical instruments must adhere to highly particular and demanding rules and regulations in order to be marketed in the United States. These instruments are often rather costly and complex to make, and only a few contract manufacturing organizations are capable of producing them to the needed high degree of quality and standard. As a consequence, this business examined the client's design, built their own proprietary manufacturing techniques, tooling, and fixtures, and manufactured sample prototype components for the customer's testing and validation without ever charging the customer.

The proprietor of this business, together with members of engineering, made educated guesses on the most likely development path. Frequently, the business proposed adjustments to the final product design of medical devices in order to increase part manufacturability. Brainstorming workshops were held to ascertain the feasibility and provide a fundamental foundation for the production process.

After then, the project entered the detailed design phase. A member of the engineering group generated designs for tooling, dies, and fixtures, as well as determined any equipment needs, using SolidWorks. Additionally, engineering partnered with production staff to do additional feasibility evaluations and enhance the design of the equipment and procedures. As part of this endeavor, they used modeling, simulation, programming, and prototyping approaches.

After receiving the engineering designs, production would fabricate the first edition prototypes of the tools, dies, and/or fixtures, as well as arrange the appropriate equipment for a trial run. While the trial run was being conducted, the process was monitored for any potential concerns that may influence the final product's quality or functioning, such as time, part orientation, or temperature.

A consumer may request between 50 and several hundred samples from this firm. The organization may build up to three times the quantity required before developing a technique capable of producing a sample that meets or exceeds the customer's specifications. Following the creation of multiple prototypes, a variety of tests are conducted to assess whether the prototypes fulfill quality and performance criteria. Destructive testing is performed on prototypes, which includes tensile and compression tests. Tests frequently fail as fixtures, tooling, and dies, as well as the processes and equipment that rely on those tools, are updated. Additionally, a large number of these sample prototypes were destroyed during destructive testing. The design of the tooling, fixtures, dies, and the process itself underwent multiple design revisions and improvements before technical professionals were able to build a cost-effective and repeatable process that passed final acceptance testing.

Results Speak for Themselves

Tax credits have been successfully claimed for a decade and are currently able to collect approximately $145,000 in combined federal and state tax credits each year.

Collect approximately


In combining federal and state tax credits

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Hire US-based engineers, developers, or scientists.
Designs and develops product prototypes and/or software.
Performs experimentation and validation on products, manufacturing processes, and/or software.
None of the above.

This calculator has been developed utilizing data from a variety of studies conducted in the industries listed. This is only an approximation based on a variety of assumptions and should be treated as such.

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Please check back with us if you perform any product or software development-related work in the future.

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