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Plastics/Polymers are vital materials at the heart of innovation and advancement in almost every industry. Injection molding makers shape these raw materials in countless ways to turn our dreams into reality. From the mission-critical parts for aerospace to life-critical parts for medical, mold builders leverage the latest technology, tools, and techniques to shape a better tomorrow.
Because of their innovative nature, most companies in the injection molding industry qualify for the R&D tax credit—one of the most significant tax breaks available in the U.S. Thanks to the elimination of the “Discovery Rule” in 2003, companies don’t even have to invent anything “new to the world” to become eligible for this significant tax break.
As long as the molding builders introduce products, processes, or techniques that are new to their companies, they could recoup up to 10% of their qualified research expenses (QREs). Injection molding builders of all sizes should look for opportunities to capture their well-deserved research tax credit to reduce their year-end tax liability and reinvest in innovation.
For research activities to qualify, they must undergo the 4-Part Test.
Once a business determines its qualified research activities, it must then identify the accurate amount spent on those activities. As defined by §174 of the Internal Revenue Code, the R&D tax credit will be calculated based on the number of qualified research expenses. QREs include the wages paid to employees, supply expenses, and contract research expenses. With that in mind, here are the four key activities that we often find R&D tax credit opportunities in the injection molding industry.
High-quality plastic parts start with a great mold design. Typically, in the initial mold design process, you will identify and assess alternatives for materials and create potential iterations. These processes are intended to eliminate product development uncertainty and they qualify for the R&D tax credit.
Whether the technical research is performed during the sales/quote process or the actual production, most mold builders take an iterative approach to come up with the best designs that fulfill the project specifications and requirements.
Example QREs:
Proper toolings are crucial to producing high-quality parts with a high production rate. Designing and developing toolings require assessing various factors such as complexity, lifetime, application, and fabrications of tooling, all of which qualify for the tax credit.
Even if you outsource tooling design and fabrication to third-party contractors, chances are you can still get a portion of your expenses back. As long as your company retains substantial rights to the research performed by the contractor and bears the economic risk associated with the contractor's R&D results, you can recover up to 65% of the amount paid to the contractor.
Example QREs:
The structural analysis is an integral component of the molding optimization process, leading to significant improvements to your finished product. During the structural analysis, you may evaluate the mechanical integrity, hydraulic performance, flex tolerance, and durability. Since this analysis entails the process of experimentation to validate the model, it qualifies for the R&D tax credit.
In addition, various tests performed to improve plastic materials, part design, or manufacturing process, such as injection molding pack and hold tests, generally meet The Four-Part Test.
Example QREs:
Have you implemented robotic automation to improve production capacity? Or have you improved the process in your facility to stay competitive in the market? As we’ve discussed above, the R&D activities don’t have to be extraordinary to qualify for the credit. Even minor changes made in your process can get you the dollar-for-dollar cash savings.
Let’s say you introduced automation or robotics to overcome the labor shortage. Since the IRS defines qualifying “supply” expenses spent towards “any tangible property other than (1) land or improvements to land, and (2) property of a character subject to the allowance for depreciation”, depreciated injection molding machine won’t qualify for the credit. However, the time spent researching, evaluating, or testing new robotics is considered a qualifying expense.
Example QREs:
R&D tax credit regulatory requirements are constantly changing. For example, take the recent update implemented in January 2022; businesses must provide additional documentation to be compliant. The key to claiming the R&D tax credit is consulting with an expert who stays abreast of the IRS requirements. Don’t miss out on an opportunity to increase your bottom line - let’s discuss your situation today and find out how much you’re owed.
