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R&D Tax Credit: 8 Hidden R&D Expenses in Your Tool & Die or Stamping Processes

What if we told you that there are many opportunities to claim the Research and Development Tax Credit in the Tool & Die industry? Would your response sound something like this?

 “I’m just making a tool for my customer, and they're paying me for it. That’s not R&D.”

Actually, it might be – and you might be leaving money on the table that your Tool & Die or Stamping company could be using to reinvest into the business.  Yes, it’s true, even if you’re making a tool and selling it directly to your customer or running parts from the tool, you could qualify for the R&D Tax Credit, allowing your organization to grow faster, be more competitive, and increase profitability. The key is understanding all of the common activities built into your processes that qualify along the way. 

Uncover the Hidden Expenses

Black Line Group's Vice President and Manufacturing Practice Leader, John Madsen, spent more than 40 years in manufacturing. He helps businesses unpack their processes and identify the activities that you may not consider R&D that happen during the various stages of manufacturing – from when the sales team specs new business to the development of new packaging for shipping the final product. 

Here are some of the areas in the Tool & Die industry where you typically find qualifying activities:

Sales Time

Taking a customer to lunch or for a round of golf doesn’t count, but any time your salesperson is talking fit, form, or function with a customer or potential customer, there are R&D activities just waiting to be identified.

For example, a customer might be suggesting the use of A2 for a die, but through conversation, the salesperson gets a better understanding of the type of material stamped and suggests D2 for better wear resistance because of its chromium content compared to A2. And after learning the estimated annual volume, the salesperson may suggest CPM, a type of tool steel that combines toughness and wear factors.

The salesperson may also choose to offer a plastic model to help the customer better understand the geometric shape and assure there’s been no misunderstanding before the tool is designed and built. The plastic model is then 3D printed and shared with the customer along with the quote for the tool. 

Sales time, like time spent in the quoting process, can qualify for the R&D Tax Credit even if you are not awarded the business.

Design Meetings

“Some shops will draw and use some type of forming simulation software to evaluate alternatives before designing,” John explains. “Virtual forming can simulate the bending, stretching, and shaping to identify critical stress areas and allow the designer to make corrections before cutting any steel.” Design teams can then share the results with the tooling experts and salespeople. This can be critical to pricing and understanding risk.

If the design is complex, more time is put into the quote to better understand material reactions and to identify and reduce risk prior to sharing numbers with the customer. (And these are all qualified R&D activities). Once you receive the order, die design in the next step.

Die Design

Ensuring that all the features requested by a customer can actually be developed in the tool is critical. During this confirmation phase, customer prints or CAD files can often leave the designer with questions. Creating a CAD model allows the designer to communicate potential questions to the customer and with the team building the tool.

Once the design has been approved, the needed tool steels, die shoes, and punches are identified. After all of this R&D, the materials are then sent to the tool-makers.

Tool Making

Once the knowledge transfer from designer to tool-maker is complete, the tool steel is cut into desired rough shapes and ground flat with a surface grinder. Tool paths must then be created for the wire EDM and machining centers. Some components of the tool may be rough-machined and sent to a supplier for the heat-treating process. Some might also be hardened before machining to help hold tighter punch and die clearances for thin material or complex part designs. Any modifications that are identified and made along the way would likely qualify for the credit.

Die Construction Assembly

Once all components have been cut and machined, they must be assembled into the die set. As the tool is built it will likely require additional work, including drilling, tapping, and doweling sections into location. Additional grinding or lapping may be needed to ensure no clearance issues or interference occurred with joining the upper and lower die section together. Again, this R&D qualifies for the tax credit.

Tool Tryout

Based on the complexity of the tool and part, a tool tryout will be part of the process – and a likely place to identify R&D. This can take hours, days, weeks, or even months, based on how well the flow of material was predicted in the design phase. Once the bugs have been identified and fixed, the customer often requests a trial run to prove the tool is producing a consistent and reliable product. Identifying all of the hours spent on these activities is crucial for claiming the R&D Tax Credit.

Quality Approval

The quality engineer will randomly sample parts produced by the tool to either identify any discrepancies or approve the process. A Coordinate Measuring Machine (CMM) is often used to document the findings and relate the consistency from part to part. Based on how well the part matched the print and fell between the upper and lower dimensional limits, the tool is approved for production or the findings are sent to the tool-maker for corrections. All of those actions are considered qualified research and development activities. Once the part is approved, the information is documented in a PPAP, FI, or ISIR and sent to the customer for final approval.

Shipping and Package Design

Depending on the tool, special design considerations may go into the building of the shipping container. As with the rest of the process, the time devoted to designing, adjusting and improving new packaging could qualify as R&D. 

Apply the Four-Part Test 

Once you identify activities and their associated expenses that may qualify for the credit, run them through the Four-Part Test. They must pass each aspect of the test to qualify.

  • Permitted Purpose. This is the activity intended to make or improve either a product or process that results in improved function, performance, reliability, quality or cost efficiency.
  • Technical Uncertainty. This is the activity intended to eliminate technical uncertainty when developing or improving a product or process related to methodology, design, techniques, formulas or inventions.
  • Process of Experimentation. This is the activity that includes a process of experimentation to eliminate or resolve technical uncertainty. During the process, various alternatives and approaches are evaluated by modeling, simulation, trial and error, prototyping and other methods.
  • Technological in Nature. The process of experimentation must rely on the hard sciences (engineering, physics, biology, chemistry, computer science).

Ultimately, there are many factors to consider in order to maximize the tax credits your organization can receive based on research and development. Black Line Group can help. We have staff members with more than 40 years of tooling and manufacturing experience that can explain the process in your terminology and help you document the process. And we will not claim a dime for you that we cannot defend.

Reach out today and find out how we can help your business grow through the R&D Tax Credit.


Do you have what you need to qualify?


Black Line Group Understands the Process for Stamping / Tool & Die

assess feasibility

Assessing Feasibility

We'll review your manufacturing processes for tool build, assemblies, PPAP, and more to determine if you qualify.
documenting the results

Documenting the Results

We will provide a robust electronic deliverable, often several hundred pages in length, supporting your credit.

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Conducting Your Study

Under the direction of your project manager, we will collaborate with you and your CPA to plan, execute, and keep you informed.


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We aren’t going to leave any money on the table, and, we aren’t going to claim a credit we can’t defend. We have your back should questions arise.

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