R&D Tax Credits: Broader Eligibility Than You Think

Elizabeth Michalak

Nov 25, 2025

Many businesses assume the federal research and development (R&D) tax credit is only for high-tech or scientific companies. In reality a wide range of organizations performing innovative or improvement-focused activities may qualify for this valuable incentive – even during years when no profits are reported.

How the R&D Credit Works

Under Internal Revenue Code Section 41, the R&D credit generally allows a business to claim a credit of roughly 20% of qualified research expenses (QREs) that exceed a calculated base amount. This base is determined using your company’s average gross receipts and historical research spending over the prior four years.

Even if your organization has only recently performed eligible research activities, you may qualify for a tax credit or refund that can reduce your tax bill and improve your effective tax rate.

Qualified Research Expenses (QREs) Include

Wages paid to employees involved in research
Supplies used in research activities
Computer rental or lease costs for research purposes, including many cloud-computing arrangements
65% of payments to contractors performing qualified research

Activities That May Qualify

To claim the R&D credit, your business typically must:

Address technical uncertainty while developing or improving a product, process, technique, formula, invention, or software.
Conduct research grounded in physical, biological, engineering, or computer sciences.
Intend to use the results to create a new or improved product or process.
Engage in a process of experimentation that aims to improve function, performance, reliability, or quality.

Examples of Qualified Activities

Exploring alternative methods for delivering products or services
Testing new systems or processes during development
Enhancing components to improve durability, efficiency, or performance
Developing new models, prototypes, or software features

Even activities in industries such as manufacturing, construction, software development, food production and engineering services can qualify if they meet the criteria.

Proper documentation of your research activities, costs, and outcomes is important to support your claim and remain compliant with IRS requirements.

Seeking Professional Guidance

The R&D credit involves complex requirements. Consult your Kirsch CPA Group advisor to help you:

Determine if your business qualifies
Identify eligible research activities and expenses
Ensure proper documentation and compliance
Maximize the credit available to your compony.

Don’t leave potential savings on the table – many businesses discover they qualify only after a careful review of their operations and expenditures.

Schedule an appointment to learn how we can support you

More Resources

Guide: Next Level Accounting Services for Your Growing Business

Guide: Build a Better Business by the Numbers

Case Study: Strategic Accounting Support from Acquisition to Sale

About The Author

Elizabeth has devoted her career to helping business owners, guiding clients in their financial strategies while keeping abreast…

emichalak@kirschcpa.com

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