R&D tax credits
A dollar-for-dollar credit for the everyday problem-solving your team already does.
The federal R&D tax credit isn't just for labs. Manufacturers, contractors, software teams, engineering firms, and product companies routinely qualify for four-part-test activities they never thought to document.
How it works
The R&D credit rewards US-based work on new or improved products, processes, software, techniques, or formulas — as long as the activity involves technical uncertainty and a process of experimentation.
Qualified expenses (QREs) typically include US wages for people performing, supervising, or supporting the work; 65% of US contractor spend; and materials consumed in the effort. A specialist quantifies QREs and calculates the credit under the regular or Alternative Simplified Credit (ASC) method.
Most taxpayers elect the ASC: 14% of current-year QREs above a base equal to 50% of the average QREs for the prior three years — or a flat 6% of QREs if there were none in those years. The regular method is 20% of QREs above the greater of your fixed-base percentage times average prior-4-year gross receipts or 50% of current-year QREs, so its effective rate often lands near 10%. Under §280C you either reduce the related §174/174A deduction or elect the reduced credit (about 79% of the gross credit).
Many states offer their own R&D credits that stack with the federal credit. Startups without income tax liability may apply up to $500K of federal credit against payroll taxes.
You may qualify if
- You design, build, or improve products, software, or processes in the US
- Your team resolves technical unknowns through iteration or testing
- You have W-2 wages for engineers, developers, or technicians
- You haven't claimed R&D credits in prior open years
What the engagement looks like
01
Fit check
Quick intake on wages, contractors, and the nature of your work.
02
Feasibility
Specialist estimates credit range and confirms open years.
03
Study
Interviews, project documentation, and QRE quantification.
04
Deliverable
IRS-defensible report + Forms 6765/8974 ready for your CPA.
Case study
Venture-backed SaaS startup
B2B software · tech startup
Situation
A 20-person SaaS startup was building a new machine-learning-driven analytics platform. Engineers spent most of their time resolving technical uncertainty around data pipelines, model accuracy, and scalable infrastructure — but the team had never documented the work as R&D.
Approach
The specialist inventoried qualifying projects, interviewed engineering leads, and quantified US engineering wages, 65% of contractor spend, and cloud/compute supplies as QREs under the Alternative Simplified Credit method.
Result
Identified a $115,000 federal R&D credit. Because the startup was pre-profit, the credit was applied against payroll taxes under the qualified small business election — real cash back within the next few quarters.
Federal credit identified
$115,000
Applied against
Payroll tax
Study fee (20% of credit)
$23,000
Illustrative example based on typical engagement outcomes. Actual results depend on your specific facts.
Common questions
We're not building rockets — do we really qualify?
The four-part test is about technical uncertainty and experimentation, not novelty. Improving a manufacturing process, developing custom software, or engineering a new product line usually meets it.
How far back can we claim?
Federal credits can generally be claimed on the three prior open tax years via amended returns. Some states allow longer look-back periods.
What about the Section 174 capitalization rules?
R&D expenditures must be capitalized and amortized under current law, but that doesn't reduce the credit — it changes the timing of the deduction. Your specialist coordinates with your CPA on both.
Ready to see if this fits?
Short intake, no cost, matched with a specialist within days.