Do You Qualify for the R&D Tax Credit?
Any U.S. business that invests in developing new or improved products, processes, software, or techniques may qualify for the R&D tax credit under IRC Section 41. The IRS applies a Four-Part Test: permitted purpose, technological in nature, elimination of uncertainty, and process of experimentation. You do not need a lab, scientists, or profitability. Once you confirm eligibility, learn how to claim step by step or compare federal vs state credits.
$
300
m+
Credits Delivered
for 1,100+ clients
1,
100
+
Clients
served since 2020
$
500
k
Payroll Offset
for qualifying startups
100
%
Audit Defense
on every engagement
Eligible Entity Types
Who Can Claim the R&D Tax Credit?
The R&D tax credit is available to a broad range of business entities. You do not need to be profitable, and you can qualify even if the research was unsuccessful. The credit applies to qualified research activities performed within the United States or its territories.
Once you confirm eligibility, learn how to claim your R&D tax credit step by step. Many states offer additional R&D credits on top of the federal benefit. See our federal vs statfe comparison.
C-Corporations
File Form 6765 with your corporate income tax return (Form 1120) to claim the credit directly against federal income tax liability.
S-Corporations
The credit is calculated at the entity level and flows through to individual shareholders on Schedule K-1 for use on their personal returns.
Partnerships & LLCs
Partnership and LLC members receive their share of the credit on Schedule K-1. Multi-member LLCs taxed as partnerships follow the same rules.
Sole Proprietors
Individual business owners report R&D credits on their personal tax return (Form 1040) using Form 6765.
Foreign Companies
Non-U.S. entities with operations conducting qualified research in the United States can claim the credit by filing a U.S. tax return (Form 1120-F).
Startups & Pre-Revenue Companies
Qualified small businesses (gross receipts under $5 million, in business less than 5 years) can offset up to $500,000 in payroll taxes annually.
The IRS Standard
The IRS Four-Part Test for R&D Tax Credits
Every qualified research activity must satisfy all four parts of this test, established under 26 U.S.C. Section 41(d). Your business does not need to discover something new to the world. The uncertainty must simply be new to your company.
For the full overview of how the credit works, see our R&D Tax Credit overview. Review the IRS guidance on the Four-Part Test (PDF).
Permitted Purpose
The research must aim to create a new or improved business component: a product, process, formula, invention, technique, or piece of software. The goal must be to improve performance, reliability, quality, or function. Cosmetic or style changes alone do not qualify.
Example: A software company building a new algorithm to process real-time data streams at scale, relying on computer science principles for distributed computing.
Technological in Nature
The activity must rely fundamentally on principles of engineering, computer science, biological science, or physical science. The hard sciences must be at the core of the work being performed.
Example: A software company building a new algorithm to process real-time data streams at scale, relying on computer science principles for distributed computing.
Elimination of Uncertainty
At the outset of the research, there must be uncertainty about the capability or method for developing or improving the product, or the appropriate design of the product. The uncertainty must be technological, not market-based or financial. Importantly, the uncertainty only needs to be new to your company, not new to the industry (as established in McFerrin v. Commissioner).
Example: A civil engineering firm uncertain whether a new composite material will meet load-bearing requirements for a bridge design in a seismic zone.
Process of Experimentation
The taxpayer must evaluate one or more alternatives through modeling, simulation, systematic trial and error, or other methods to resolve the technical uncertainty. There must be a process of experimentation, not just intuition or past experience.
Example: An automotive manufacturer running iterative CAD simulations and physical prototype tests to determine optimal engine block geometry for improved heat dissipation.
Key Point: Your research does not need to succeed to qualify. Failed experiments, abandoned prototypes, and shelved projects can all generate R&D tax credits, as long as the four-part test was met when the work began.
Industries That Qualify
Which Industries Qualify for R&D Tax Credits?
The R&D tax credit extends far beyond traditional research labs. Any industry where companies develop or improve products, processes, or software can qualify. Here are some of the most common:
View detailed qualifying activities for your industry in our industry-specific R&D tax credit guides.
Software & Technology
AI, SaaS, cybersecurity, fintech, mobile apps, cloud platforms
Manufacturing
Process optimization, new materials, automation, tooling, quality systems
Architecture & Engineering
Structural design, LEED, civil engineering, building systems
Medical & Pharmaceutical
Drug development, clinical trials, medical devices, diagnostics
Aerospace & Defense
Propulsion, avionics, satellite tech, defense systems
Food & Beverage
Formulation, shelf life, packaging, production processes
Agriculture
Precision farming, crop breeding, sustainable practices, AgTech
Engineering
Civil, structural, mechanical, electrical, environmental engineering
Qualified Research Expenses
What Expenses Qualify for the R&D Tax Credit?
Learn how the Alternative Simplified Credit method calculates your credit on our how to claim page. See IRS research credit guidance for official details.
Employee Wages (W-2)
Wages paid to employees who directly perform, supervise, or support qualified research activities. This includes engineers, developers, scientists, project managers, and QA testers. The percentage of time each employee spends on qualifying activities determines the eligible wage amount.
Supplies & Materials
Costs for tangible supplies used and consumed during the research process. This includes raw materials for prototyping, testing chemicals, server costs for development environments, and components used in experimentation.
Contract Research (65%)
Payments to third-party contractors performing qualified research on your behalf qualify at 65% of the amount paid. The research must be performed in the United States and meet the four-part test.
Cloud Computing & Software
Cloud computing costs directly tied to qualified research activities, including development and testing environments, CI/CD pipelines, and compute resources used during experimentation.
Important
What Does NOT Qualify
- Market research and surveys
- Quality control testing after production
- Management studies and efficiency surveys
- Routine data collection
- Adaptation of existing products for a specific customer without technical uncertainty
- Research conducted outside the United States
Quick Estimate
Estimate Your R&D Tax Credit
Use our free calculator to get a quick estimate of how much your company could save.
Myths vs Facts
What Are the Most Common R&D Tax Credit Misconceptions?
You need a lab or research facility to qualify.
No lab required. Companies qualify for everyday activities like designing software, optimizing manufacturing processes, or developing new formulations.
Only technology companies qualify for R&D credits.
Companies in manufacturing, architecture, engineering, food and beverage, agriculture, aerospace, construction, and dozens of other industries qualify.
My company is too small to qualify.
Startups and small businesses qualify. Companies with under $5 million in gross receipts can offset payroll taxes by up to $500,000 per year.
The research must be successful to qualify.
Failed experiments, abandoned prototypes, and shelved projects all qualify, as long as the four-part test was met when the work began.
Claiming R&D credits will trigger an IRS audit.
Claiming R&D credits does not automatically trigger an audit. The IRS has a separate, scoped review process for R&D claims handled by subject matter experts.
My CPA already checked and said we do not qualify.
Most CPAs are generalists and do not specialize in R&D tax credits. Strike has identified qualifying activities for companies whose accountants initially said they did not qualify.
Concerned about audits? Read our evidence-based analysis: Does amending for R&D credits trigger an IRS audit? Startups and pre-revenue companies can still benefit. Read: R&D tax credit for companies operating at a loss.
Why Strike
Why Choose Strike Tax Advisory?
$300M+ in Credits Delivered
For more than 1,100 clients across software, manufacturing, aerospace, engineering, food and beverage, agriculture, and dozens of other industries.
Zero Upfront Fees
Strike works on 100% contingency. You pay nothing unless we successfully identify and deliver R&D tax credits.
Free Unlimited Audit Defense
Every engagement includes Strike Shield audit protection. If the IRS reviews your claim, we defend it at no additional cost.
No Obligation
Free 15-Minute Assessment
We can usually tell you within 15 to 30 minutes whether your company has a meaningful R&D credit opportunity and give you a rough estimate of the potential savings.
No cost. No obligation. No pressure.
Quick Estimate
Estimate Your R&D Tax Credit
Use our free calculator to get a quick estimate of how much your company could save.
Real Results
R&D Tax Credits We Have Delivered
$
3.7
m
Robotics Firm
35 employees. 70% of wages and 90% of expenses qualified. Custom robotics design, production, and integration.
$
668
k
Cybersecurity Company
SaaS firm with patent-pending encryption development. Qualified for federal and state credits.
$
657
k
Automotive Manufacturer
30 employees. Custom racing engine design and manufacturing innovation qualified at 62% of wages.
R&D Tax Credit Eligibility: Frequently Asked Questions
The four-part test requires that your activity has a permitted purpose (creating or improving a product, process, or software), is technological in nature (relies on hard sciences), involves elimination of uncertainty (you did not know the outcome in advance), and follows a process of experimentation (systematic evaluation of alternatives). All four parts must be satisfied.
No. Companies operating at a loss can still claim the credit. It carries forward for up to 20 years. Qualified small businesses with gross receipts under $5 million can offset up to $500,000 per year in payroll taxes, even with zero income tax liability.
Yes. Startups that have been in business for less than five years and have gross receipts under $5 million can elect to apply the R&D credit against their payroll tax obligation. This is particularly valuable for pre-revenue companies and venture-backed startups.
Your company does not need to be based in the U.S., but the qualified research activities must be performed within the United States or its territories. A foreign company with a U.S. subsidiary or branch conducting R&D in the U.S. can claim the credit by filing a U.S. tax return.
You need records connecting your projects, people, expenses, and technical uncertainty. This includes project descriptions, employee time records, payroll data, expense reports, technical design documents, test results, meeting notes, and source code repositories.
Yes. The IRS does not require that your research succeed. Failed experiments, abandoned prototypes, and shelved projects all qualify for the credit, as long as the four-part test was met at the outset of the work.
Not Sure If You Qualify? Find Out in 15 Minutes.
Strike Tax Advisory offers a free, no-obligation eligibility assessment. We can usually determine if your company has a meaningful R&D credit opportunity within a single call.