10 Hidden R&D Expenses in Your Sheet Metal Fabrication Company
It’s not a stretch to say our manufacturing practice leader, John Madsen, knows even more about sheet metal fabrication than the R&D Tax Credit. John spent more than 40 years immersed in every aspect of the contract metal forming business, from his early years as a tool designer to programing a Wiedemann turret punch to running the engineering department and later as a general manager. He has spent hours understanding how one welding operator can totally warp a multi-piece assembly on one day and another operator can create parts to print the very next day with the same weld fixture.
What does all this have to do with the R&D Tax Credit, you may ask? John knows manufacturing inside-and-out from the production floor to the front office, so he can identify all of the little (and not so little) things that go into the manufacturing process that qualify for the credit!
Finding Hidden R&D Expenses in Sheet Metal Fabrication
The following points outline the process used when fabricating sheet metal and explain how each step of the process can qualify for the R&D Tax Credit.
- If you are designing your own project or given CAD files or prints from your customer, all projects must be manufactured in accordance with the information specified by the original design engineer.
- If you are a contract manufacturer, the sheet metal product specifications identified on the print are your requirements for a finished product. To accomplish the final project, at times rough drawings or assembly drawings will be made to understand each step of the fabrication process.
The time spent on this type of activity including the quoting process would be qualified. "This is true even if your customer has given you the design and specified the material used," John explains. "As the shop owner, you are still at risk to produce a quality part for the price you have quoted. Your process is the secret sauce that you develop and retain. This process is unique to each of your customers’ specific parts."
In other words, all the time spent quoting and trying to reduce components needed to manufacture and simplify the design to make your company more competitive with the best quote possible is includable – even if you are not awarded the project.
The time spent by your team, including design meetings and pulling people from the shop to help collaborate on the best process, can also qualify for the credit.
Once you have been awarded the contract, the details must be finalized, and flat blank drawings made for each component as bend allowances are calculated. Each part of the assembly is programmed for the turret press, laser or water jet. A BOM is created and parts are ordered. Again, all of this could qualify for the credit!
"Every step of the process of turning a raw sheet of steel into a finished metal fabrication is eligible for qualifying R&D Tax Credits," John explains. "As the raw material undergoes several different processes to create the final product, your employees time, and the supplies and contractors contributing to the project can potentially be included for every new job or revision."
Identifying the 10 Stages of Manufacturing
What is the typical process or value stream of a new project flowing through your shop? John typically looks at ten key stages of the manufacturing process, so if yours looks like this, you likely have untold R&D expenses that could qualify:
- Sales – fit, form, function conversations
- Engineering – understanding the project and looking for improvements
- Quoting – pricing the project even if you are not awarded the job
- Flat blank and design layout – evaluating alternatives
- Weld fixtures and tooling build time – design and build time for new projects
- Programing – including laser, turret, waterjet, brakes, assembly/welding robotics, etc.
- Set-up and run times of the first trials – set-up people and one-up supervision count as qualified time
- Quality and PPAPS, FA, ISIR – QA time to verify parts are correct
- Unique finish requirements – qualifying vendors or experimenting with new processes
- Custom packaging – some larger projects require custom packaging to protect the product
All the different steps in the process used to manufacture a sheet metal fabrication can contribute to creating an excellent R&D tax credit for you as the shop owner. Even when errors occur and uncertainty is discovered and corrected, the additional R&D activities can contribute to offsetting your tax liabilities and help your business be more competitive, grow faster and be more profitable.
How to Claim the R&D Tax Credit
How do you take advantage of the credit? Your first step is a quick phone call with John to discuss how we can help.
“We will conduct the analysis needed to predict your potential R&D Tax Credit and share our fee to help you with your ROI calculations before you ever spend a dime,” John explains. “And you can be assured that we are conservative in nature and will never claim a credit we cannot defend for you.”
