R&D Tax Credit

The Research and Development (R&D) Tax Credit – formally the Credit for Increasing Research Activities under IRC §41 – is a federal, dollar-for-dollar tax credit designed to reward U.S. companies for investing in innovation. Unlike a deduction, which reduces your taxable income, a tax credit directly reduces what you owe. Many states also offer their own R&D credits that stack on top of the federal benefit, making the combined opportunity substantial for qualifying businesses.

Any U.S.-based company that pays employees or contractors to conduct qualifying research activities may be eligible – regardless of size, industry, or how long they’ve been in business. There’s no minimum revenue requirement. Startups with no current tax liability have their own pathway through a payroll tax offset provision. If your business is actively developing or improving products, processes, or technology, there’s a good chance you qualify.

That’s fine! In fact, small and mid-sized businesses are often the ones leaving the most money on the table simply because they don’t know they qualify. In fact, Congress specifically expanded the credit in 2015 to create better access for startups and smaller companies. We work with businesses across a wide range of revenue sizes – from early-stage companies to established middle-market firms.

The federal R&D Tax Credit is generally worth 6 – 8% of your total qualified research expenses (QREs) when calculated under the regular credit method. Under the Alternative Simplified Credit (ASC) method – which most companies use – the credit is 14% of QREs that exceed 50% of the average QREs from the prior three years. For companies with no prior R&D history, the ASC rate is 6% of current-year QREs. The right method depends on your expense history and tax situation, and we evaluate both to maximize your outcome.

Yes! The R&D Tax Credit can be claimed retroactively for any open tax year – typically the past three years for federal purposes, though this can extend to four years if you filed an extension. Many companies we work with discover they’ve been qualifying for years without claiming a dollar. Amended returns are a core part of what we do, and prior-year studies often represent the largest single payout in an engagement.

You don’t need a lab notebook for every experiment. The IRS recognizes that most businesses don’t document R&D in a formal scientific way. What matters is that you can reconstruct a reasonable, well-supported picture of what your team worked on and why it qualifies – and we’ll guide you through that. We help clients gather, organize, and present available evidence in a way that meets the IRS’s evidentiary standards – even when documentation is scattered or informal.

When the study is conducted properly and the documentation is solid, claiming the R&D Tax Credit is no more risky than any other well-substantiated tax position. The credit is explicitly written into the tax code, and millions of companies claim it every year. The risk comes from poorly prepared claims – inflated numbers, weak documentation, or activities that don’t actually meet the four-part test. Our methodology is designed to be defensible from the moment we start.