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.

Tool and Die Manufacturing Research and Development Activities to Qualify for the R&D Tax Credit
Designing new tools, dies, casts, jigs, and fixtures
Experimentation to develop production processes
Development of strip layouts during feasibility and quoting
Development of 3D models and experimentation via simulation
Material usage improvements via modifications to production process
Optimization of geometry to minimize tooling complexity
Development of software models to analyze material movement during forming
Creation of prototypes and first articles for validation purposes
Development of programs for automated production equipment including CNC programming
Die construction and tool tryout activities
Validation testing to determine final design of tooling
Experimentation to determine the repeatability and quality of production processes
Production of prototypes and low rate initial production for testing and validation

R&D Tax Credit Qualification for

Tool & Die

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.

Results Speak For

When all was said and done, the tool and die manufacturer invested considerable financial and creative resources into the development of their processes and technology in order to emerge as an innovative bellwether in their field with over four decades of experience. The research and development activities that were performed generated an estimated $1,000,000 in qualifying costs in 2014, allowing them to claim the tax credit totaling $68,000. Since that time, their research has continued to grow and expand with the company generating around $1,400,000 in qualifying R&D costs allowing them to claim approximately $95,000 through the R&D tax credit each year.

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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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