Tool and Die R&D Tax Credit
Under the tax code, a company that designs or produces tool and die parts is allowed to claim the credit because that company is participating in any number of qualifying R&D activities
Manufacturers of tools and dies qualify for the R&D Tax Credit since they design these components for use in the construction of other products. Under the tax code, a company that designs or produces tool and die parts is allowed to claim the credit because that company is participating in any number of qualifying R&D activities such as the optimization of a production process, validating elements or components for a product, or creating the software that enables the design or production of these components.
Tool and die makers typically deliver these specialty goods and services within a specific field and take on the processes of conceiving, developing, and fabricating components from a wide range of supplies and resources. While direct labor is generally the largest R&D expense for many tool and die companies, one of the benefits of the credit is the ability to capture materials and supply costs which will often include the cost of the tooling and dies themselves. Qualified expenses also include consumable supplies utilized in their shop for prototyping purposes, as well as consumable supplies utilized in the validation process for new or modified products.
The R&D activity at this tool and die manufacturer began with initial customer discussions to define requirements and specifications for tooling. Initial reviews included the evaluation of final product designs and often a review of the physical parts themselves. During the early phases of a project, the team analyzed the part and began exploring everything from production materials, to manufacturability. This team included engineering, tool designers, CNC machinists, quality, and other production leaders. This was an iterative process and required many trials, arriving at a product and a process that fulfilled the client requirements.
From there, the team started drafting exhaustive and meticulous precision tooling concepts. Through the use of 3D rendering, they were able to simulate a range of use cases in order to establish the strength, structural integrity, heat transfer, electromagnetic potential, and manufacturing potential of a part and tool through a detailed finite element analysis. As a result of these trials, changes in the design were made and later approved and finalized.
Once the tooling was designed the team built prototype tooling which started the validation effort. During this process, prototypes and first articles were produced to evaluate the integrity of the tooling. This validation process would inevitably lead to further development and modification of both the final part and tooling designs. This phase was put through multiple cycles until the team felt confident they had devised a production process they could recreate over and over again with dependability and accuracy every time. In addition, the part had to meet the standards of quality criteria put in place at the start of the preliminary phases of development.
