Does Your Custom Production Set-Up Qualify for an R&D Tax Credit?

Aug 28, 2018 8:33:31 AM

custom production setupOptimizing production set-up is critical to ensure your production runs as efficiently as possible and produces a high-quality product that meets all of your client's specifications. But did you know this process could also qualify you for an R&D tax credit?

Your custom set-up procedures require continuous testing to improve the process, so they could meet R&D requirements. By documenting these processes and the time spent by all individuals involved, you may be in line for valuable tax credits that could help you grow your business.

The Set-Up Process

It's a situation manufacturers are very familiar with: the customer communicated the requirements of the specific part or product using CAD files or prints, final verification of the tool tryout process is completed, and now it’s time to move the tool to the production floor.

Here's where your production set-up process becomes is critical. As you go through each step, be sure to document the activities of all personnel involved in the process.

Here are some examples of potentially qualifying activities that may be more valuable than you realized:

  • Set-up time for the new process.
  • Time spent by supervisors supporting employees and improving the process.
  • Employee time spent setting up the tool, gathering materials and containers for the finished product.
  • Verification by the set-up specialist for primary considerations such as dimensions, tools used, shut heights, cycle times, speed and feed required.
  • Sustainability and repeatability check by the quality lab to verify the new process dimensions have not changed from the tool tryout process.
  • The time spent by set-up personnel and the tool makers collaborating to prove the tooling can produce a quality part.

It's important to note that once a process has been developed, future production set-ups would not be eligible for an R&D tax credit unless the process has been improved for cost, quality, or reliability. In other words, your set-up process has to meet the "Four Part Test" in order to qualify for R&D tax credits.

How Do I Get My R&D Tax Credit?

To earn R&D tax credits, your custom production set-up must pass the Four-Part Test. This gauges your process against four criteria (permitted purpose, technical uncertainty, process of experimentation, technological in nature) to determine whether they meet the established research and development requirements.

In general, qualified activities would include any actions taken to complete the set-up for the first attempt of a production or trial run. This includes any activity performed by engineers, tool makers, quality specialists, and all other personnel involved in the set-up process. All time related to manufacturing a first quality part would also qualify.

Unqualified activities would involve any set-up for repeat orders of existing products with no significant design or tooling changes.

Why Wait?

Chances are your production set-up processes already qualify you for R&D tax credits. So, if you're not documenting your process and working with a tax professional to secure those credits, you're essentially leaving money on the table. By simply analyzing your process and recording the actions taken by your production set-up personnel, you can earn valuable credits that can keep you competitive and improve your business.

Find out How Big Your Credit Could Be