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Many business owners think Research & Development (R&D) tax credits are only for tech giants in lab coats or companies launching rockets into space. The truth? Plenty of everyday businesses are leaving money on the table because they don’t realize their day-to-day problem-solving may qualify for valuable tax savings.
The R&D tax credit under IRC §41 rewards businesses for developing or improving products, processes, software, or techniques. If your company is experimenting to make something better, faster, cheaper, or more reliable, you could be sitting on hidden tax credits.
What Qualifies as R&D?
To qualify, the IRS applies a four-part test to your activities:
Permitted Purpose – The project aims to develop or improve a product, process, or software.
Uncertainty – There was technical uncertainty about how to achieve the result.
Hard Sciences – The work is based on engineering, computer science, biology, or similar fields.
Expenses That Count Toward the Credit
- Wages – Salaries of employees directly performing, supervising, or supporting R&D activities.
- Supplies – Materials consumed during research, like prototype components and lab supplies.
- Contract Research – Payments to third parties who perform qualified research on your behalf (65% of these costs are eligible).
- Cloud Computing and Software – Certain software and cloud expenses used directly in R&D.
Expenses That Do NOT Count
Not every cost makes the cut. These do not qualify:
- Research conducted outside the United States
- Work in the social sciences, arts, or humanities
- Routine quality control testing
- Reverse-engineering existing products
- Internal-use software (unless it meets a tougher “high bar” standard)
Why Businesses Miss Out
Many companies assume they don’t qualify because they aren’t “high tech.” Others fail to document their research efforts, making it hard to claim the credit. Even industries like manufacturing, construction, food production, and software development often have qualifying projects hiding in plain sight.
Don’t Leave Money on the Table
The R&D tax credit can significantly reduce your tax liability, improve cash flow, and free up funds for reinvestment. The key is to identify qualifying activities and properly document the work. Timesheets, project notes, and even failed prototypes can help support your claim.
At IRSProb.com, we help businesses uncover hidden credits and navigate the complex rules so you can maximize your tax savings.
Ready to find out if your business has unclaimed R&D credits?
Contact IRSProb.com today and let us help you turn innovation into tax savings.
