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Precision-Crafted Tax Savings: R&D Credits in the Machining Industry

The machining industry, a dynamic and evolving sector, is constantly pushing the boundaries of technological advancement. A significant driver of this innovation is the research and development (R&D) tax credit, a federal and state incentive designed to stimulate technical design and product development.

Arc welding of huge industrial machining during process of repairing

The Role of R&D in the Machining Industry

R&D plays a pivotal role in the machining industry, driving advancements in software development, hardware design and manufacturing processes. The IRS looks favorably on a host of activities that are commonplace in the machining industry: namely, anything involving technological advancement.

In terms of software development, these qualifying activities include developing robotics and automated technology; undertaking coding and programming to enhance machinery interface communication; creating finite elemental analysis (FEMA) software; and advancing computer-aided design (CAD), computer-aided manufacturing (CAM) modeling and simulation, and computer numerically controlled (CNC) programming.

Qualifying Activities for R&D Tax Credits in the Machining Industry

The IRS has a broad definition of what constitutes R&D, and many activities in the machining industry qualify for the tax credit. These include:

  • Experimenting with various kinds of materials
  • Creating engineering requirements for special fixtures
  • Maintaining a milling process’s speed without inviting breakage
  • Maximizing production feeds and speeds, while guaranteeing a given part’s quality and integrity
  • Maintaining uniform constraints in the lathing process
  • Eliminating or minimizing warpage for welding and fabrication processes
  • Designing technology for tight tolerances

Uncovering Hidden R&D Activities in a Machine Shop

If you are a contract manufacturer working with new jobs or developing your own new product or process, you likely have processes that would qualify for the R&D tax credit. The process of uncovering these hidden expenses is similar, whether intending to improve a product or a process. Here are some areas where R&D expenses often hide in a machine shop:

  • Sales and Quoting: To price a project, salespeople and cost estimators must understand the unique part requirements, including the machinability of the raw material, quantity, size and tolerance, along with your in-house capabilities.
  • Design: When designing a new part or programming tool paths for your shop, additional considerations include the properties of the material being machined, tooling and the order of tools used to create the desired shape.
  • Trial Production and Proof of Concept: Operators must prepare the CNC machine before running the program. Dry running the program allows for identification of potential errors and fixing mistakes before a crash can occur.
  • Quality Approval: CNC machining requires attention to detail based on the type of tolerances being held. Having a documented procedure that includes quality approval from the QA lab in larger operations or having a second operator in smaller shops verifying parts are to print is critical to producing consistent acceptable products.
  • Shipping and Package Design: Part requirements are much stricter and held to a tighter tolerance in the machining industry, which means the potential for damage to parts is more likely. Custom packaging, therefore, is often needed to prevent damage.

Getting an R&D Tax Credit Analysis to see if you qualify is the first step!

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