RESEARCH & DEVELOPMENT TAX CREDIT
YOUR INNOVATION MAY BE WORTH MORE THAN YOU THINK.
- Only 33% of Businesses THAT QUALIFY Actually Claim It!
- It was Estimated, in 2024, $50 Billion of R&D Tax Credits Went Unclaimed
- 85% of the R&D Tax Credit Are Utilized By Large Corporation Because Smaller Companies DO NOT KNOW THEY QUALIFY
- If You Missed the Credit in the Last Three Years, IT IS Not Too Late
- Prior to the OBB, businesses MUST amortize R&D Expenditures, By Not Claiming the R&D Tax Credit, Businesses are Increasing Their Tax Liabilities without the Benefit of Significant Tax Credits Savings
- Many Companies Invest in Developing Products, Improving Processes, Solving Technical Problems, or Create New Technology Without Realizing Those Activities May Qualify The Business For Valuable Tax Incenntives.
- Even Startups That Have Not Had Profitable Year May Qualify
What Are the Benefits of R&D Tax Credits?
There are great advantages that R&D Tax Credits can offer a company, including:
Tax savings
The primary benefit of R&D Tax Credits is the tax savings they provide. Companies can use these credits to offset their income tax liability, reducing the amount of taxes they owe.
Cash flow
R&D Tax Credits can also provide a cash flow benefit for companies. If a company has more credits than taxes owed, it can carry the credits forward or back to offset taxes in other years
Opportunity for innovation
By providing tax incentives for R&D activities, the government encourages companies to invest in new technologies and processes, which can lead to innovation and growth.
Competitive advantage
Companies that invest in R&D activities may gain a competitive advantage by developing new products or services, improving existing ones, or reducing costs through innovation
Job creation
R&D activities often require specialized skills and knowledge, which can lead to the creation of high-paying jobs in fields such as science, engineering, and technology
R&D Scenarios
See what qualifies as R&D in your industry
Over 1,000 businesses claimed credits last year for activities they were already doing. Select your industry to see examples.
What Software/Technology Development Activities Qualify?
Many software developers perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What Biotechnology Activities Qualify
Many biotech firms perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What Manufacturing Activities Qualify?
Many manufacturers perform activities that qualify for the R&D tax credit without realizing it. Some examples of activities that often qualify include:
What Pharmaceutical/Biotech Activities Qualify?
Many pharmaceutical companies perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What Medical Device Activities Qualify?
Medical device companies perform many activities that qualify for the R&D tax credit. Examples include:
Medical devices tend to be among the strongest-fit industries for the R&D credit because much of the work is inherently technical and inherently uncertain by regulatory necessity. Here's what typically qualifies:
Design and engineering development
Prototyping and iterative testing
Software and firmware development
Verification and validation (V&V) activities
Biocompatibility and materials testing
Manufacturing process development
Clinical and pre-clinical support work (with caveats)
What Engineering Activities Qualify?
Many engineers perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What FinTech Activities Qualify?
Some fintech companies perform activities that qualify for the R&D tax credit without realizing it. Some examples of qualifying activities include:
What Financial Services Activities Qualify?
Financial Services/Fintech is one of the less obvious fits for the R&D credit. Here's what typically qualifies:
What Construction Activities Qualify?
Many construction companies perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What Architecture Activities Qualify?
Many architecture firms perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What Food & Beverage Activities Qualify?
Many food & beverage manufacturers perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What Agricultural Activities Qualify?
Many agribusiness companies perform activities that qualify for the R&D tax credit without realizing it. Examples include:
What Restaurant Activities Qualify?
Restaurants perform many activities that qualify for the R&D tax credit. Examples include:
Recipe and menu development
Food science and process work
Kitchen and operational systems
Supply chain and sourcing-related development
What Aerospace & Defense Activities Qualify?
Aerospace & defense is one of the most naturally R&D-intensive industries — the technical uncertainty is often baked into the work itself. Here's what typically qualifies:
Design and engineering development
Modeling, simulation, and analysis
Prototyping and physical testing
Materials development
Software and systems engineering
Manufacturing process development
Systems and sub-system qualification work
What Chemical and Material Science Activities Qualify?
Chemical and materials science is a natural fit for the R&D credit — formulation work is almost inherently a "process of experimentation." Here's what typically qualifies:
Formulation and product development
Materials development and testing
Process development and scale-up
Analytical and testing method development
Application engineering
Environmental, health & safety-driven development
Manufacturing process improvements
What Consumer Products Activities Qualify?
Consumer products is a broader, more varied category than some of the others — R&D credit eligibility here really depends on separating genuine technical development from marketing/design work that looks like innovation. Here's what typically qualifies:
Product formulation and development
Packaging development
Product design and engineering
Performance and durability testing
Manufacturing and process development
Sustainability-driven development
Software/technology (for connected consumer products)
What Apparel and Textile Activities Qualify?
Apparel and textiles can be a surprisingly strong fit for the R&D credit, though a lot of the industry's day-to-day work (seasonal styling, trend-following) doesn't qualify. The key is separating genuine technical/performance development from fashion design. Here's what typically qualifies:
Fabric and material development
Dyeing, finishing, and treatment development
Garment engineering and construction
Performance and durability testing
Manufacturing process development
Technology integration
What Breweries, Wineries and Distilleries Activities Qualify?
Breweries, wineries, and distilleries are a good fit for the R&D credit — fermentation-based production naturally involves experimentation. Still, there's an important line between genuine process/recipe development and routine production runs. Here's what typically qualifies:
Recipe and formulation development
Fermentation process development
Aging and maturation development
Process and equipment development
Quality and stability testing (developmental, not routine)
Agricultural/sourcing-related development (for wineries especially)
Sustainability and byproduct development
What Cosmetic Activities Qualify?
Cosmetics is a strong fit for the R&D credit — formulation chemistry is inherently experimental — but like consumer products, there's an important line between genuine formulation/technical work and marketing-driven "innovation." Here's what typically qualifies:
Formulation development
Stability and compatibility testing
Efficacy and performance testing
Ingredient and delivery system development
Sensory and texture development
Packaging and dispensing development
Manufacturing process development
What Telecommunications Activities Qualify?
Telecommunications is another less obvious fit for the R&D credit. Here's what typically qualifies:
What Automotive Activities Qualify?
Automotive is another less obvious fit for the R&D credit. Here's what typically qualifies:
What Energy/Utilities Activities Qualify?
Energy/Utilities is another less obvious fit for the R&D credit. Here's what typically qualifies:
What Healthcare/Healthtech Activities Qualify?
Healthcare/Healthtech is another less obvious fit for the R&D credit. Here's what typically qualifies:
Our Steps to R&D Success
We work with your team to identify potential activities, understand underlying work, and determine which eligible expenses
01
Getting Started
Meet with a member of our team to receive an overview of the R&D Tax Credit and review your eligibility. Our team will detail the documentation needed.
02
Initial Assessment
Our team will use this information & data to estimate what credit you are eligible for and establish an optimal claim timeline. If no credit is identified, there will be no cost for you!
03
Comprehensive R&D Study
Our technical consultants will determine the list of qualified R&D projects according the 4-part test while our tax consultants will work with you to ensure that the Qualified Research Expenditures (QREs) are accurate.
04
Report Writing & Finalization
Legacy’s team of Tax and Technical experts will work together to complete the calculations and provide your deliverables, including a detailed technical report and supporting documentation.
05
Receive your Benefits
After filing the proper documentation with the IRS and State, the R&D Tax Credit will reduce your income tax liability in the current tax year and refund for the previous 3 years. Any remaining credit can be carried forward up to 20 years.
06
R&D Study Review
Review your R&D Study Report with our Tax and Technical experts for the next year to increase efficiencies for future claims.
Are All Industries Eligible for the R&D Tax Credit?
R&D Isn't Limited to Scientists in Lab Coats!
The R&D Tax Credit is not limited to a specific industry. It is an activity-based tax credit. If a company’s employees or contractors are physically working in the U.S. or U.S.-controlled territories and meet the requirements of the four-part test, then you may be eligible, pending other criteria. Below are industry-specific examples of activities your organization may be doing that could qualify for R&D tax credits:
Technology and Software Development
⦁ Integration of new and legacy systems
⦁ Design and testing of systems, such as hardware or software
⦁ Modification of existing systems and processes to improve performance, scalability, security, or throughput
⦁ Improvements to off-the-shelf solutions to meet the needs of the taxpayer’s environment
Industrial Manufacturing
⦁ Design, construction, and testing of prototypes or pilot models
⦁ Development of new construction or processing techniques to improve reliability in the manufacturing process
⦁ Development of new techniques to address health, safety and environmental concerns
⦁ Attempts to minimize product failure in the production process
Life Sciences and Pharmaceutical
⦁ Experimentation with new or alternative materials or reagents into existing processes
⦁ Development of new or improved informatics or analytical tools
⦁ Clinical trials
⦁ CRO activities
Financial Services
⦁ Integration of new platforms with in-house developed software
⦁ Development of new trading platforms
⦁ Integration of new financial products (e.g., crypto) into new or existing applications and systems
⦁ Financial modeling and the development of new algorithms
Food and Beverage
⦁ Test kitchen activities
⦁ Development of new packaging techniques
⦁ Attempts to improve manufacturing processes
Energy Organizations
⦁ Design and development of networks and systems to monitor energy capacity transmission
⦁ Development of new and improved batteries
⦁ Development of new biofuel production techniques
Architecture
⦁ Developing innovative design processes to enhance efficiency or sustainability
⦁ Creating software tools to streamline building design and construction workflows
⦁ Implementing advanced modeling techniques for structural analysis or energy performance optimization
Engineering
⦁ Researching and developing new materials for use in aerospace, automotive, or electronics industries
⦁ Designing and testing prototype systems for improved product performance or safety
⦁ Innovating energy-efficient technologies for renewable energy systems or smart infrastructure
R&D Frequently Asked Questions
What is the R&D Tax Credit?
The R&D Tax Credit is a federal tax incentive that rewards businesses for developing or improving products, processes, software, or technology. It can reduce a company’s tax liability dollar for dollar.
Does my company need a research lab to qualify?
No. You do not need a laboratory, patents, or a dedicated R&D department. Engineers, developers, technicians, and other employees performing qualifying development work may qualify.
What types of companies can qualify?
Companies in software, manufacturing, engineering, architecture, construction, food and beverage, agriculture, life sciences, aerospace, and many other industries may qualify.
Can a company performing R&D for clients qualify?
Possibly. The contract and the parties’ financial risk and rights to the research must be reviewed to determine who can claim the credit.
Can software development qualify?
Yes. Developing new software or improving existing software can qualify when the work involves technical uncertainty and experimentation.
Can failed projects qualify?
Yes. A project does not have to succeed or reach the market. Failed prototypes, abandoned projects, and unsuccessful experiments may still qualify if the underlying work meets the R&D requirements.
What activities qualify for the R&D Tax Credit?
Activities generally need to involve developing or improving a product, process, software, technique, or design while resolving technical uncertainty through experimentation.
What is the four-part R&D test?
Qualifying activities generally must:
- Have a permitted purpose
- Be technological in nature
- Address technical uncertainty
- Include a process of experimentation
The original FAQs use these four criteria as the main eligibility framework.
What activities do not qualify?
Examples generally include routine quality control, market research, purely cosmetic changes, research outside the U.S., simple duplication or adaptation, and certain funded research.
What expenses can qualify?
The main categories are:
- Employee wages
- Supplies and materials used in R&D
- Qualified contractor research expenses
- Certain cloud-computing or development-environment costs
The source specifically groups qualifying expenses around wages, supplies, and contract research.
Can contractor expenses qualify?
Yes. Certain payments to U.S.-based contractors performing qualified research on the company’s behalf may be included.
Can prototype and testing costs qualify?
Yes. Materials consumed during prototyping, testing, experimentation, and development may qualify when connected to eligible R&D activities.
How much could my R&D Tax Credit be?
It depends on your qualifying expenses, calculation method, and prior-year activity. The source estimates federal credits commonly around 6–10% of qualifying research expenses, although each company is different.
Can small businesses benefit from the credit?
Yes. Smaller businesses can generate meaningful credits when they have qualifying R&D activity and expenses.
Can a company claim the credit if it is not profitable?
Yes. A company can generate R&D credits even when it does not currently owe income tax. Unused credits may generally be carried forward.
Can startups use the credit?
Yes. Certain Qualified Small Businesses may be able to apply R&D credits against payroll tax liabilities rather than waiting until they become profitable.
How much payroll tax can a qualifying startup offset?
Under the information in your FAQs, qualifying small businesses may be able to apply up to $500,000 per year against payroll taxes, subject to eligibility requirements.
What can the R&D Tax Credit be used for?
Depending on the situation, it may reduce:
- Federal income tax
- Payroll tax for qualifying startups
- Certain state tax liabilities
Is the federal R&D Tax Credit refundable?
Generally, no. It is primarily used to offset tax liability. However, qualifying startups may use the payroll tax provision, and some states have refundable or partially refundable programs.
Can I claim the credit every year?
Yes. It can be claimed in every year your company performs qualifying R&D activities.
Can I claim R&D credits for prior years?
Often, yes. Open prior tax years may be amended to claim credits that were previously missed.
What is a multi-year R&D study?
A multi-year study reviews multiple open tax years at once so a first-time claimant can potentially recover credits from prior years as well as establish the credit going forward.
How far back can I amend returns?
The FAQs generally describe a three-year amendment window, although the exact statute depends on when the return was filed and the company’s circumstances.
Can I claim a credit for a tax year that is already closed?
Generally, you cannot obtain a new refund once the amendment statute has expired.
What happens to unused R&D credits?
Federal credits can generally be carried forward for up to 20 years.
Is there an annual deadline for claiming the credit?
The best practice is to claim it with the timely filed tax return, including extensions. Certain elections — especially payroll tax elections — may require a timely original return.
Did the R&D Tax Credit expire on July 6, 2026?
No. According to the supplied FAQ material, the Section 41 R&D Tax Credit itself did not expire on July 6, 2026. That date related to special retroactive Section 174A relief for certain taxpayers, not the general R&D credit.
What does an R&D study involve?
You provide information about your business, qualifying projects, employees, expenses, and tax years. The study team reviews the information, calculates the credit, and prepares supporting documentation.
What documentation will I need?
Common documents include:
- General ledgers
- W-2 wage summaries
- Employee lists and job titles
- Federal and state tax returns
- Relevant contractor agreements
Will the study disrupt our business?
The process is designed to require minimal involvement beyond providing information, documents, and participating in key discussions.
How long does an R&D study take?
Most studies take a few weeks, depending largely on how quickly the requested information and documents are provided.
Can I save my progress and come back later?
Yes. Questions can be skipped and completed later, and progress can be saved throughout the study.
What happens when the study is complete?
You receive the calculated credit, supporting calculations, documentation, and an audit-ready study report. Your tax professional can then file the credit on the appropriate return.
Can I use the R&D Credit Service without using your tax preparation service?
Yes. The R&D study can be completed independently, with the documentation and instructions provided to your existing tax preparer.
What does the service cost?
According to the supplied FAQ, the study operates on a contingent-fee basis: the fee is based on the credit identified, and if no qualifying credit is found, there is no study fee.
Does claiming the R&D credit increase my audit risk?
Claiming a legitimate and properly documented R&D credit does not automatically trigger an audit. Strong documentation is important if the IRS reviews the claim.
What happens if my R&D credit is audited?
The study documentation is designed to support the claim, and the supplied FAQs state that audit support is included with the engagement.
Do you provide audit support?
Yes. The FAQs state that audit assistance is provided for completed studies at no additional charge.
Why is an R&D study important?
A study documents both the financial calculation and the technical basis for the credit, helping substantiate the claim if it is reviewed.
Is my data secure?
According to the supplied FAQ, information is encrypted in transit and at rest and is accessible only to authorized members of the study team.
Is there a calculation guarantee?
The supplied FAQ states that calculations are guaranteed against study errors up to the stated guarantee limit.
What is the difference between Section 174 and Section 41?
Section 174 deals more broadly with research and experimental expenditures, while Section 41 determines which qualified research expenses can generate the R&D Tax Credit.
What changed for Section 174?
The tax treatment of research expenses has changed in recent years, including capitalization/amortization requirements and later changes affecting domestic research expenditures.
What did OBBBA change for R&D expenses?
According to your FAQ content, OBBBA introduced Section 174A, restored immediate expensing for qualifying domestic R&D beginning after 2024, and created temporary retroactive relief provisions for certain small businesses.
What is the Section 280C election?
It allows taxpayers to take a reduced R&D credit while generally preserving the full research expense deduction, rather than reducing the deduction by the full credit amount.
Is the Section 280C election mandatory?
No. A taxpayer can choose between the reduced-credit election and the alternative tax treatment, depending on which produces the better result.
Can I deduct R&D expenses and still claim the credit?
Yes, but tax rules prevent receiving a double benefit on the same expenses. Section 280C determines how the deduction and credit interact.
Where is the Section 280C election made?
According to the supplied content, it is generally made on Form 6765 with a timely filed original return.
When might the Section 280C election not be the best choice?
The FAQs identify situations such as loss years, certain payroll-credit situations, and states that do not conform to federal treatment. The best option should be modeled based on the taxpayer’s circumstances.
What tax elections may need to be made after the study?
The supplied material highlights two important decisions:
- The Section 280C election
- The payroll tax offset election for qualifying small businesses
The source itself separates these as two post-study tax decisions.
How do you work with CPA and tax preparation firms?
The CPA remains the client’s primary tax advisor. The R&D specialists perform the specialized study and provide an audit-ready package for the CPA to file.
Do CPAs need to be R&D tax experts?
No. The R&D team handles the technical qualification analysis, calculations, documentation, and study work.
Will partnering with you create extra work for our firm?
Minimal additional work is required. The partner generally maintains the client relationship and handles the filing while the specialist team handles the R&D study.
What does the engagement look like for a referrer?
After the introduction, the R&D team handles the engagement from initial scoping through the final deliverable while keeping the referring firm informed at key milestones.
How is client confidentiality handled?
The supplied FAQ states that client information remains confidential and is not used in marketing or case studies without permission. NDAs can also be signed when requested.
How do you work with Family Offices, Private Equity, and Venture Capital groups?
The specialist team can support portfolio companies while allowing the existing tax preparer, CFO, wealth manager, or advisory team to maintain the primary relationship.
How do you ensure accuracy and defensibility?
Each engagement produces calculations, technical narratives, workpapers, forms, and supporting documentation designed to substantiate the credit.