Stake Your Claim with R&D Tax Credits

It’s tax time, and that reminded me of a presentation I heard that was given by Michael Devereux, II, CPA, CMP, partner and director of manufacturing, distribution and plastics industry services at Mueller Prost, at a recent conference in Anaheim, California. He told attendees that if someone had asked him 10 years ago, what percentage of injection molders or moldmakers were aware of the many possible tax credits they can earn for their businesses and why, he’d say maybe two or three percent. Today, he says, it’s closer to 50 or 60 percent, thanks to presentations like the one he was giving.

MMT readers, this just reinforces the importance of attending trade events and conferences, like Amerimold and others, to learn how to be more profitable—not just in traditional ways, but by becoming knowledgeable about topics like the R&D Tax Credit and hearing real-life examples about other companies like yours that are taking advantage of these benefits. Moldmakers are extremely creative and innovative, working daily to find solutions for their customers’ product development and molding challenges. But too many moldmakers call that problem solving “just a day’s work” or “just part of the job.” Not so!

“Research not only happens in the lab and in engineering at the draft table, it happens in board rooms when you’re having design review meetings,” Devereaux says. “Numerous different cost centers are involved in research: engineering, research, development, and even sales. For example, a sales engineer might come back with a design concept, sit down with his team of engineers and say, okay, our customer wants this; how can we do it? It all qualifies.”

He explains that even wages for certain employees also qualify. For instance, you might have an employee who is trialing a new mold and documenting everything that goes into that effort in order to validate the tool, or how about the quality department, which directly supports the effort, and the president of the company might be directly overseeing the whole process. “Most of the companies I’ve worked with are family-owned businesses. The Patriarch started the company. They love their businesses and they don’t want to give up the tool design or product design. They want to be involved in the research and development and that all qualifies as a credit,” he says.

Devereux says that even supplies and materials that you use but are not capitalized or depreciated, such as inventory, can qualify for the R&D Tax Credit. Molds are most often one-off, one-of-a-kind when they’re built, but perhaps you use a standard mold base for a mold you’re designing and building cores for. Those cores and cavities that you designed and built would qualify but you would exclude the mold base because it wasn’t the focus of your research, he says. Conversely, if you were to create your own custom mold base because it has complex waterlines or venting, etc., Devereux says the mold base would then count. Even work that is contracted out, including mold-flow analysis, metrology services and more can qualify.

I could continue, but the blog would be endless. Instead, I recommend you view MMT’s “The Bottom Line” series, which is authored by Michael and covers a wide array of tax-related tips, examples and guidelines. He’s very knowledgeable, especially when it comes to small- and mid-sized manufacturing companies and has been a regular contributor to MMT since 2015. You’ll find his columns here.