An automotive parts manufacturer developed a novel production process that reduced waste by 35% while improving part quality. Our team helped them identify and document all qualifying R&D activities, including failed iterations and testing procedures, resulting in $875,000 in tax credits that funded further automation improvements.
The Challenge
This automotive parts manufacturer was focused on improving their production processes to reduce waste and enhance product quality. They had developed a novel production process that achieved remarkable results—35% reduction in material waste while simultaneously improving part quality.
However, the company didn't realize that the development work, including all the failed iterations and testing procedures, qualified for R&D tax credits. They were missing out on significant tax savings that could fund further improvements.
Our Approach
Our manufacturing CPA team conducted a thorough review of the company's process development activities. We identified and documented:
- All experimental iterations and process variations tested
- Failed attempts and what was learned from each
- Testing procedures and quality control improvements
- Engineering time spent on process development
- Materials and supplies used in experimentation
- Equipment modifications and tooling development
We established comprehensive documentation that captured the technical challenges, solutions developed, and the iterative nature of the process innovation work.
Key Outcomes
$875,000 in R&D tax credits secured: By properly documenting all qualifying R&D activities, we secured $875,000 in tax credits for the company.
35% reduction in material waste: The process innovation itself achieved a 35% reduction in material waste, creating both environmental and financial benefits.
Implementation of advanced automation: The tax savings were strategically deployed to fund advanced automation systems that further improved efficiency and quality.
Competitive advantage through proprietary processes: The combination of improved processes and automation created a significant competitive advantage in the automotive parts market.
The Value of Process Innovation
Process innovation is often overlooked when companies think about R&D tax credits, but it can be one of the most valuable areas for manufacturers. Qualifying activities include:
- Developing new manufacturing processes
- Improving existing processes to reduce waste or improve quality
- Testing different process parameters and configurations
- Developing new tooling or equipment modifications
- Quality control improvements and testing procedures
Why Documentation Matters
The key to successfully claiming R&D tax credits is proper documentation. This includes:
- Records of experimental activities and iterations
- Documentation of technical challenges and solutions
- Time tracking for R&D activities
- Cost allocation for qualifying expenses
- Evidence of the iterative nature of the work
Conclusion
This case study demonstrates how process innovation in manufacturing can qualify for R&D tax credits, providing significant financial benefits that can be reinvested in further improvements. The $875,000 in credits not only recognized the value of the company's innovation work but also provided the capital needed to implement advanced automation systems.
If your manufacturing company is engaged in process improvement, waste reduction, or quality enhancement activities, you may be eligible for R&D tax credits. Our team can help identify qualifying activities and establish the documentation needed to maximize your tax savings.