R&D Tax Credit Solutions for Machine Shops

Manufacturers around the world rely on machine shops to fabricate custom parts that become part of a larger system. These parts all contain unique dimensions and tolerances and are subject to stringent inspection and testing. In order to create these parts to specification, machine shops must perform their own R&D to prove that they can, in fact, meet the customer’s requirements. Consequently, trial and error is the lifeblood of the machining industry. If a machine shop cannot figure out the programming, fixtures, tooling, and testing processes needed to develop a successful part, they will often not win a purchase award. As a result, the upfront activities used by machine shops to produce a prototype or first article part often qualify for the R&D Tax Credit.

Successful machining of a finished product requires discovery of a successful formula containing CAD/CAM programming to control tool path, proper fixture or workholding, and proper tooling. Often, the components of this formula are designed from scratch and require substantial trial and error to get it right. The R&D Credit may be available if your company engages in any of the following activities:

Designing a production workflow or job traveler
Developing CAD/CAM programming
Testing alternative speeds and feeds within the machine
Designing custom fixtures
Testing alternative cutting tools for milling and turning
Testing concepts on hand-operated machines
Developing QC testing procedures
Machining and testing first article parts
Developing custom finishing processes
Developing processes to bend, cut, and finish sheet metal
Redesigning production packages to improve throughput and to reduce waste
Experimenting with new machinery
Developing programming to run automated micrometer testing

For most machine shops performing upfront programming and first article manufacturing runs, the wages of CNC programmers, machinists, QC specialists, and estimators can be attributed, in whole or in part, to the R&D Credit. Material costs associated with fall out or scrapped parts, along with 65% of qualified subcontractors, may also qualify.

To determine whether or not your company’s activities may qualify for the R&D Tax Credit, please contact the team at Alternate Tax Solutions or visit our R&D Tax Credit Estimator for Job Shops.

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