Tool & Die R&D Tax Credits

Drive innovation in tooling, dies, and precision manufacturing. Tool & die shops, stamping operations, die‑casting toolmakers and precision‑tool producers across the U.S. are developing new tooling systems, additive‑tooling integration, smart dies, and manufacturing automation. Many of these activities qualify for the federal R&D Tax Credit under IRC §41, plus state‑level benefits.

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Examples of qualifying activities in tool & die manufacturing

Die & Tooling Innovations Designing new stamping dies, progressive dies, hybrid dies (additive + subtractive), or smart dies embedded with sensors to monitor wear and process variables.
Material & Surface Treatment Research Testing new tool‑steel alloys, coatings (PVD, CVD), surface‑engineered tooling that extends life or reduces friction and wear.
Process Automation & Smart Tooling Integration Embedding sensors in tools for condition‑monitoring, integrating robotic handling of dies, automating tool‑change operations, integrating digital twins of tooling systems.
Additive Manufacturing & Hybrid Tooling Methods Developing additively‑manufactured tooling inserts, lattice structures in dies, novel cooling channels, and verifying performance via experimentation.
Wear‑Reduction & Lifecycle Extension Projects Running die‑life trials, evaluating new lubricants/coatings, real‑time monitoring of process variables to reduce downtime and scrap.

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What qualifies as R&D in Tool & Die Manufacturing?

To qualify, activities must:

Pursue a permitted purpose such as designing a new die process, new tooling method, smart die with sensors, or additive manufacturing tool integration
Address technical uncertainty about method, capability or design in tooling, form‑and‑die engineering, additive manufacturing, or automation
Follow a process of experimentation through prototype tooling runs, die‑life testing, sensor‑integration trials or process‑validation runs
Be technological in nature, grounded in mechanical engineering, materials engineering, controls or automation systems

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Qualified Research Expenses (QREs)

Expense Type

Examples in Tool & Die Industry

Eligibility Notes

Wages

Tooling engineers, die designers, materials specialists, automation engineers

Must be engaged in experimental R&D tasks

Supplies

Prototype tooling, inserts, test coupons, sensor modules, consumable materials

Must be used in the research process

Software / Cloud

Simulation (FEA, CFD) tools for die‑stress or thermal modelling, condition‑monitoring analytics platforms

Eligible when used for experimental modelling or validation

Contract Research

Labs conducting materials testing, sensor integration trials, die‑life testing labs

~65% of subcontract cost may qualify when dedicated to R&D

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Roles commonly involved in qualifying activities

Tool & die engineers and designers
Materials engineers specializing in tool‑steel, coatings or additive manufacturing
Automation, robotics and sensor/instrumentation engineers
Mechanical engineers modelling wear, thermal or structural behaviour
External labs, testing facilities and prototype tooling houses

What does not qualify

Routine production of tooling, dies or standard job‑shop tooling without experimentation
Applying existing tooling methods at scale without innovation
General administration, sales or standard maintenance tasks
Tooling or capital‑asset purchases not tied to experimentation

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Compliance and Documentation

§174 Update

Following the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, §174 now allows immediate expensing of domestic research expenses for tax years beginning on or after January 1, 2025. Taxpayers may also elect optional amortization under new §174A. Foreign research expenses must still be amortized over 15 years. This is separate from the §41 credit but impacts overall tax planning.

Project outlines detailing tooling innovation goals, test plans, iterations
Prototype tooling datasheets, wear‑test logs, sensor‑data runs, die‑performance data
Comparative metrics (baseline vs improved), revision logs
Employee time records tied to the experimental work
Evidence satisfying the four‑part test under §41

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Frequently Asked Questions

Do tool & die manufacturers qualify for the R&D Tax Credit?

Yes — if they are designing new tooling, incorporating sensors, automating processes, or materially changing materials/designs rather than simply building standard tools.

What expenses can be claimed?

Wages of designers and engineers, tooling/material test coupons, simulation software, contract research in labs or prototype facilities.

Which operations are eligible?

Tool & die shops, stamping operations, job‑shop toolmakers, additive tooling integrators, and tooling‑equipment manufacturers engaging in innovation.

What activities do not qualify?

Routine tooling builds, standard job‑shop operations without experimental change, administrative tasks, and standard equipment purchases.

How much might be saved?

Savings depend on the scope of R&D; companies can claim a meaningful share of qualified research expenses when properly documented.

How should tool & die firms document research?

Keep logs of prototype tooling builds, wear‑test results, sensor integrations, simulation runs, die‑change logs, and employee time allocations for R&D tasks.