Project Summary
A custom injection molding company was tasked with developing new tooling and processing parameters to qualify a recycled-content thermoplastic for a demanding automotive program. What began as a complex engineering challenge turned out to be a significant tax opportunity. By satisfying the IRS four-part test, the company unlocked $348,935 in federal R&D tax credits and $238,745 in state credits, amounting to $587,680 in total savings.
Project Overview
To qualify for the R&D Tax Credit, each activity must satisfy the IRS four-part test. CSSI’s analysis confirmed that the qualifying activities identified for this company met all four criteria:
- Business Component: Directed at qualifying a new recycled-content thermoplastic for automotive use, a clear effort to develop or improve a business component’s performance and reliability under IRC §41.
- Elimination of Uncertainty: At the outset, it was unknown whether the recycled-content material could meet the structural and processing requirements of the automotive program. The company’s team worked to determine if, and how, that was achievable.
- Process of Experimentation: Engineers evaluated multiple tooling configurations and processing variables through iterative trials and testing, systematically working through alternatives to resolve material and performance uncertainties.
- Technological in Nature: Activities including tooling design, process parameter development, and material qualification relied on principles of polymer science, mechanical engineering, and materials testing.
|
Employee Wages |
$2,840,000 |
|
Supply and Contractor Costs |
$833,000 |
|
Total QRE’s |
$3,673,000 |
|
Total State Credit |
$238,745 |
|
Total Federal Credit |
$348,935 |
Study Results
The analysis identified a total of $3,673,000 in Qualifying Research Expenses (QREs) across the tax year. Employee wages accounted for the largest share, with $2,840,000 attributable to engineers, tooling specialists, and process technicians directly engaged in qualifying research activities. Supply costs contributed an additional $625,000 in qualifying expenses, primarily from materials used in tooling development, test runs, and processing trials with the recycled-content thermoplastic. Contractor expenses added $208,000, representing the 65% allowable portion of third-party research costs under IRC §41. Based on those qualifying expenses, the study produced a federal R&D Tax Credit of $348,935 and a state R&D Tax Credit of $238,745, bringing the company’s total tax credit benefit to $587,680.
Key Takeaways
- Solving a Customer’s Problem Still Counts: Even when R&D is driven by a client requirement, the technical work of qualifying new materials and developing tooling meets the IRS definition of qualified research.
- Wages Drive the Credit: With $2,840,000 in qualifying employee wages, the largest portion of the credit came from the engineers and process technicians already doing the work, no additional investment required.
- Supplies Add Up Fast: The $625,000 in qualifying supply costs, from test materials to tooling trials, made a meaningful impact on the total QRE base and ultimately the size of the credit.
- State Credits Significantly Boosted the Outcome: At $238,745, the state credit actually exceeded the federal credit on a relative basis, a strong reminder that state-level opportunities deserve just as much attention.
- Sustainability Work Qualifies Too: Developing processes around recycled-content materials isn’t just good for the environment, it’s the kind of technical problem-solving the R&D credit was designed to reward.
Ready to Discover Your R&D Tax Credits Potential?
If your company is developing or improving products, formulas, or processes, you may be leaving significant tax credits on the table. CSSI’s engineering-based approach ensures every qualifying activity is identified, documented, and defensible, so you capture the full value of the work your team is already doing.
Request a Free Analysis today and find out what your business could qualify for.
