R&D Tax Credit Extension Means Savings for Moldmakers

With the Fiscal Cliff now behind us, moldmakers can continue to benefit from the Research and Development (R&D) Tax Credit.  The research tax credit has a long history of almost seamless extensions since its inception in 1981, and was recently once again extended through December 31, 2013 with the passage of the American Taxpayer Relief Act of 2012.

The purpose of the credit is to provide incentive to U.S.-based companies to encourage research and development (“R&D”) within the U.S, and thus foster innovation that will keep the U.S. at the leading edge of technology. The R&D tax credit provides dollar for dollar credits to companies for spending R&D.  However, the credit is often overlooked, especially in the contract manufacturing environment, such as mold manufacturing.  

Because they typically don’t have their own product line and are making parts for other companies, it’s widely believed that moldmakers do not perform R&D. However, what these companies don’t realize is that much of what takes place on a day-to-day basis may qualify for the R&D Tax Credit.  Many moldmakers leave money on the table that could potentially mean the creation of immediate and substantial amounts of cash, minimally into the many tens of thousands of dollars annually.

R&D doesn’t just take place in a lab with scientists in white coats. At a high level, activities associated with developing and/or improving a product or process can qualify for the R&D Tax Credit.  In the mold manufacturing environment, much of the R&D taking place will be mold tool development or process development.  Often design for manufacturability, the design of the mold tool, and the design of the overall process will be required. All of these areas have high potential for R&D.  

The key thing to understand about the R&D Tax Credit in the moldmaker environment is that it’s okay to be confident that you can meet a customer’s request.  You only need to be unsure HOW to meet those objectives, such as what gating configuration, cooling lines, materials, etc.  Additionally, research and development can also be taking place when you are improving your manufacturing processes through automation and technology.

Effective use of the R&D Tax Credit in the mold manufacturing industry includes understanding what activities qualify, identifying everyone in a company that is touching R&D (it’s not just the mold designers), and how much time they are spending on these activities. Being able to document the projects and time allocations of people is also an important aspect for successfully claiming R&D Tax Credits.  Finally, understanding when you are no longer doing R&D is equally important. Once you have figured something out and are ready to go to production, that’s when the R&D stops.

With tax season upon us, now is a great time to evaluate whether your company would benefit from the R&D Tax Credit in a meaningful way.

Contributor:
Scott Schmidt - Principal, founded Black Line Group in 2003 to educate and assist companies through the process of successfully applying for the R&D Tax Credit, the firm's sole focus. He has presented information on the R&D Tax Credit for trade associations across the country and has authored numerous articles on the topic. Scott's career includes more than 17 years with Ameriprise Financial (formerly American Express Financial Advisors/IDS). He earned his Bachelors Degree with a major in Economics from the University of Minnesota. Scott also co-founded, and is the co-chairman of the National R&E Roundtable—a cooperative effort among providers of R&D Tax Credit services from across the country that includes both middle market CPA and specialty R&D Tax Credit firms.

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