So, you've produced the product to your customer’s specifications, and the quality and integrity of the product was verified by your quality lab. Now it’s time to ship the product to your customer. Packaging is the next critical step in the process, but one that often goes overlooked in terms of its value - and it shouldn't.
That's because your custom manufacturing packaging process could put you in line for R&D tax credits. By tracking your internal processes and the actions taken by your personnel during the packaging stage, you could earn valuable tax credits that can help improve your bottom line.
The Packaging Process
Packaging is an indispensable aspect of the product development process. Each final product must be packaged to prevent damage and preserve the product throughout the shipping process until it reaches your customer.
So, how does such a standard practice end up qualifying you for R&D tax credits?
The answer lies in what your company did to develop or improve packaging for your products. If you took any of the following steps, you may be in line for a valuable tax credit:
- Hired a packaging engineer to design unique product custom packaging.
- Searched for new materials because of environmental impact concerns or regulatory compliance changes.
- Optimized packaging size and flow through the process.
- Taken steps to streamline the packaging process to lean events and reduce cost.
- Designed reusable boxes or custom cell dividers.
- Researched or tested boxes to reduce the “fluted” or heard “flute size” to reduce cost and customer dunnage. (Flute size is a measure of the thickness of the cardboard.)
These are only a few of the packaging process actions that could qualify for R&D tax credits. What matters most is that the activity is intended to improve the packaging for cost, quality, or reliability. Keep in mind that if you're testing or experimenting with your product packaging, you could be in line for tax credits.
R&D Tax Credit Requirements
If you're not sure whether your custom manufacturing packaging process qualifies for tax credits, use the Four-Part Test. This will help you determine if the activity meets the specific requirements for the R&D tax credits.
In general, a packaging process would only qualify for tax credits if a unique package design was needed to prevent damage on shipping and/or a unique process was implemented as required by the end customer.
If you're packaging the standard product in “stock” boxes, you would not qualify for tax credits.
The Total Package
Leveraging your custom packaging process to earn R&D tax credits is a great way to improve your company's financial health because it utilizes a process you already have in place. There's no need to develop a completely new system. All you have to do is document your process, check to see if your activities meet the R&D requirements, and then you can reap the tax benefits.
As orders come in for new products, you'll likely be experimenting with your packaging process anyway. Why not use that activity to claim the credit and reinvest the savings to improve your bottom line and enhance your company's operations? It really is a win-win.