Tool and die manufacturers are uniquely qualified for R&D, as they are designing components (i.e. tools and dies) that are used in the manufacture of end products. Whether the company strictly does tool and die design/build or expands into the actual production process, both of these areas can have qualifying R&D activities. These companies are involved in optimizing production processes, developing programming, and validating components. Tool and die companies often specialize in a particular industry sector and design and create precision tools or casts used to shape and form parts with various materials. While direct labor is generally the largest R&D expense for many tool and die companies, one of the benefits of the credit is the ability to capture materials and supply costs which will often include the cost of the tooling and dies themselves. Qualified expenses also include consumable supplies utilized in their shop for prototyping purposes, as well as consumable supplies utilized in the validation process for new or modified products.

The R&D activity at this tool and die, manufacturer, began with initial customer discussions to define requirements and specifications for tooling. Initial reviews included the evaluation of final product designs and often a review of the physical parts themselves. During the early phases of a project, the team analyzed the part and began exploring everything from production materials to manufacturability. This team included engineering, tool designers, CNC machinists, quality, and other production leaders. This was an iterative process and required many trials, arriving at a product and a process that fulfilled the client's requirements.

Next was the development of detailed tooling designs. With 3D computer modeling, the team simulated a wide variety of use cases and determined the manufacturability, heat transfer, fluid flow, electromagnetic potential, strength, and structural integrity of a part and tool through the use of finite element analysis. This drove changes in the design until it was finalized.

Once the tooling was designed the team built prototype tooling which started the validation effort. During this process, prototypes and first articles were produced to evaluate the integrity of the tooling. This validation process would inevitably lead to further development and modification of both the final part and tooling designs. This cycle repeats itself until the team has developed a repeatable, reliable, and accurate production process and a part that meets all of the quality standards set forth in the early stages of development.

This tool and die company made significant investments in their processes and technology in addition to taking a lot of financial risk to become a leader in their industry over their 40-year history. The company generated roughly $1MM in qualified expenses in 2014 and claimed a $68,000 credit. Since then, their research has expanded and now, the company generates roughly $1.4MM in qualifying research and development expenses entitling them to a credit of roughly $95,000 dollars annually.