Home / Tax Credits / R&D Credit

Available nowNo expiration date. Immediate expensing of domestic research costs was restored for tax years starting after December 31, 2024.

IRC Section 41 · Form 6765 · Tax credit

Research and Development Tax Credit

It is not a tech credit. If you improve a product or a process by trial and error, it may apply

Most commonly missed by non-tech companies that assume it does not apply to them

Who it is forManufacturers, food and beverage producers, engineering firms, software developers, fabricators, tool and die shops, breweries and distilleries, agriculture operations, and any business developing or meaningfully improving a product, formula, or production process.

What it is worthA first-time filer using the simplified method gets 6% of qualified research spend. $200,000 of qualified spend produces roughly a $12,000 credit before adjustments.

Where it is claimedForm 6765, under IRC Section 41

Why businesses miss this one

The name. Owners hear 'research and development' and picture lab coats. The statute is about developing or improving a business component through a process of experimentation, which describes a machine shop dialing in a new part, a food producer reformulating a recipe, or a contractor engineering a new method. Preparers also avoid it because the substantiation burden is real.

How the money actually works

Qualified research expenses are wages for qualified services, supplies consumed in research, computer rental or lease, and contract research.
Contract research is included at 65% of what you paid, or 75% for a qualified research consortium, or 100% in narrow energy research cases.
Most small businesses use the Alternative Simplified Credit. If you had qualified spend in each of the prior three years, the credit is 14% of the amount by which this year's spend exceeds half the three-year average.
If you had no qualified spend in any one of the prior three years, the credit is a flat 6% of this year's qualified spend. That is the number most first-time filers should use.
The regular method computes 20% of spend over a base amount, with the base floored at 50% of current spend and the fixed-base percentage capped at 16%.
Reduced credit election under Section 280C: 15.8% regular or 79% of the simplified credit. If you do not make it, you must instead reduce your research expense deduction by the full credit amount.
Payroll tax offset: a qualified small business can apply up to $500,000 of the credit against employer payroll taxes instead of income tax. This is real cash for a company with no income tax liability.

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What to gather before you call anyone

Organized records are the difference between a preparer who says it is not worth the trouble and one who finds the money. Have these ready.

Project-level documentation identifying each business component and the specific uncertainty being resolved
Time tracking or a defensible allocation methodology for wages claimed
Payroll records supporting the wage component
Contracts for any contract research, establishing who bore the economic risk and who holds rights in the results
Prototype, test, and iteration records supporting a process of experimentation
Form 6765 with Section F, and Section G where required

Disqualifiers and traps

These are the places claims fall apart, either at filing or on examination.

Funded research is excluded. If a customer pays you regardless of outcome and holds the rights to the result, the expenses are not yours to claim. This is the most litigated disqualifier in the entire credit.
The 'substantially all' test requires that at least 80% of the activity constitute a process of experimentation. Most failed claims fail here.
Excluded outright: research after commercial production begins, adapting an existing product to one customer's requirements, duplicating something that already exists, efficiency surveys, market research, and foreign research.
The payroll tax offset election must be made on an original, timely filed return including extensions. It cannot be made late, and there is no relief.
The payroll offset has a lifetime limit of 5 elections. Plan which years to use.
The Section 280C reduced credit election is also original-return-only and irrevocable.
Section G business component reporting becomes mandatory for tax years beginning after 2025, with an exemption for smaller filers. The documentation bar is rising, not falling.

One more thing worth knowing

Separate from the credit: domestic research costs can again be deducted immediately rather than amortized, for tax years beginning after December 31, 2024. Businesses that capitalized research costs in 2022 through 2024 can deduct the entire remaining balance on the 2025 return, or spread it over 2025 and 2026. Foreign research still has to be amortized over 15 years. Note that a separate small-business retroactive amended-return election closed on July 6, 2026.

Sources

Every figure on this page traces to one of these. All verified August 14, 2026.

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This is educational information, not tax advice. Big Brain Funding is not a CPA firm, an enrolled agent, or a tax preparer. We do not prepare, file, or sign tax returns, and we do not determine whether any business is eligible for any tax program. Eligibility depends on facts specific to your business and on tax law that changes. Nothing here is a promise of a refund, a credit, or a deduction amount. Confirm everything with a licensed CPA or enrolled agent before you file or amend a return.

Program details on this page were verified against official IRS and government sources on August 14, 2026. Tax law changes, sometimes mid-year. Check the linked sources for the current position before acting.