Electrical Engineering R&D Tax Credits

Maximize innovation in electrical engineering. Electrical engineering firms in the U.S. are actively developing new power‑system architectures, control systems, embedded electronics, sensor networks and smart grid technologies. Many such efforts qualify for the federal R&D Tax Credit under IRC §41, plus state‑level incentives may apply.

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Examples of qualifying activities in electrical engineering

Embedded Electronics & Control Development Developing advanced circuit boards, novel sensor/actuator networks, new firmware logic, power‑management ICs, or sensor‑integrated systems.
Power Systems & Grid Innovation Testing new microgrid architectures, renewable‑integration systems, active network control, smart‑metering networks, energy storage and power conversion innovations.
Electrification & Motor Drive Systems Experimenting with high‑efficiency motor drives, power electronics, inverter topologies, EV charging systems, thermal management of electronics.
Sensor Networks & IoT Applications Designing architectures of sensors, data‑collection systems, edge computing, embedded analytics, real‑time control loops in industrial or building systems.
Optoelectronics / Lighting Systems Developing advanced LED systems, lighting control networks, adaptive lighting solutions, integrated sensors for lighting/performance optimization.
Electromagnetic Compatibility & Materials Testing new insulating materials, electromagnetic interference reduction architectures, advanced PCBs with new material substrates, novel conductor/insulator systems.

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What qualifies as R&D in electrical engineering?

To qualify, activities must:

Pursue a permitted purpose — a new or improved electrical system, component, embedded control, power architecture or network
Address technical uncertainty about capability, method, or design of the electrical or electronic system (e.g., reliability, control logic, thermal management, integration)
Follow a process of experimentation — via prototypes, simulation, embedded firmware testing, field trials or sensor monitoring
Be technological in nature, grounded in electrical engineering, electronics, power systems, control systems, communications or material science

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Qualified Research Expenses (QREs)

Expense Type

Examples in Electrical Engineering

Eligibility Notes

Wages

Electrical engineers, firmware developers, sensor/data analysts, embedded systems technologists

Must work on experimental/innovative tasks

Supplies & Materials

Prototype PCBs, sensors, power‐electronics hardware, monitoring devices, test instrumentation

Must be consumed or used in research process

Software / Cloud

Simulation tools for power/thermal modelling, embedded software dev platforms, FPGA/ASIC simulation, cloud data‑analytics platforms

Must support qualified research activities

Contract Research

External lab testing of circuits/materials, power‑systems integration consultants, sensor‑network test houses

Portion of contract may be claimed

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Roles commonly involved

Electrical design leads working on novel circuitry and systems
Embedded systems engineers, firmware/software specialists
Power systems architects and analysis specialists
Sensor/data engineers and IoT system integrators
Research labs: power electronics, materials, EMC testing houses

What does not qualify

Routine electrical engineering design using conventional components and known methods without experimentation
Routine supply, installation or maintenance of electrical systems without new development
Construction of standard systems using off‑the‑shelf components if no technical uncertainty was resolved
Aesthetic or purely regulatory compliance work (unless driven by innovation)

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Compliance and Documentation

§174 Update

Following the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, §174 now allows immediate expensing of domestic research expenses for tax years beginning on or after January 1, 2025. Taxpayers may also elect optional amortization under new §174A. Foreign research expenses must still be amortized over 15 years. This is separate from the §41 credit but impacts overall tax planning.

Electrical engineering firms should:

Write project briefs describing technical uncertainty (e.g., new power‑conversion topology, embedded sensor system, robust grid architecture)
Maintain prototypes, test logs, simulation runs, firmware versioning, sensor output logs
Track employee time spent on qualified research tasks vs standard design/maintenance tasks
Retain contracts/scopes showing rights and risk retention for research outcomes Proper documentation strengthens audit readiness under the IRS four‑part test.

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Frequently Asked Questions

Do electrical engineering firms qualify for the R&D Tax Credit?

Yes — when they engage in new/control systems, power architectures, sensor networks, embedded electronics or electrification innovations, they may qualify.

What expenses can be claimed?

Wages of engineers and technologists working on innovation, materials for prototypes (PCBs, sensors, power electronics), simulation/embedded software platforms, and contract research testing.

Which activities qualify in electrical engineering?

Examples: microgrid architecture testing, EV charging system development, sensor networks for industrial systems, embedded control logic, custom power‐electronics topologies, advanced lighting/sensor integrated systems.

Which activities do not qualify?

Standard electrical design work using proven systems, electronics assembly without design/innovation, regular maintenance/upgrades without solving technical uncertainty, and purely regulatory or aesthetic tasks.

How should electrical engineering firms document research?

Project narratives with hypotheses and technical uncertainty, version control logs for firmware/software/hardware, test data, simulation logs, time logs for personnel engaged in research tasks, sensor/field data.

How much can firms typically save?

It varies based on the scope and investment in research. Firms with significant innovation programs may capture substantial credits; smaller firms focusing on isolated experiments may still capture a meaningful amount.