R&D Tax Credit Estimator
Estimate Section 41 Credits for Payroll & QREs
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IRS requires the "4-Part Test" to claim these funds. Get a free eligibility review from a tax specialist.
The 2025 Founder's Guide to R&D Tax Credits
The Research and Experimentation (R&D) Tax Credit is a federal incentive designed to promote innovation in the U.S. Businesses of all sizes—not just major labs—can claim a dollar-for-dollar reduction in their tax liability for developing new products, software, or processes.
Start-Up Provision (PATH Act):
Pre-revenue startups can use the R&D credit to offset up to $500,000 per year in employer payroll taxes (Social Security). This is essentially "free money" for companies burning cash.
Pre-revenue startups can use the R&D credit to offset up to $500,000 per year in employer payroll taxes (Social Security). This is essentially "free money" for companies burning cash.
The IRS "4-Part Test" for Eligibility
To qualify as a "Qualified Research Expense" (QRE), your activity must meet four criteria:
- 1. Permitted Purpose: The goal must be to create a new or improved product, process, or software with increased performance, reliability, or quality.
- 2. Technological in Nature: The activity must rely on the principles of hard sciences (engineering, computer science, physics, biology).
- 3. Elimination of Uncertainty: You must be attempting to discover information to eliminate uncertainty about the capability, method, or design.
- 4. Process of Experimentation: You must demonstrate a process of trial and error (simulation, modeling, testing alternatives).
What Costs Can I Claim?
You can typically claim three types of expenses:
- Wages: W-2 taxable wages for employees directly involved in R&D (and their direct supervisors).
- Supplies: Materials used in the R&D process (prototypes, AWS/Cloud costs for dev environments).
- Contractors: 65% of fees paid to US-based third-party contractors for R&D work.
Frequently Asked Questions
Does software development count?
Yes. Developing new software architecture, algorithms, or database systems is one of the most common R&D claims. Cosmetic web design generally does not count.
Can I claim if I have no revenue?
Yes! If you are a "Qualified Small Business" (gross receipts <$5M and <5 years old), you can apply the credit against your payroll taxes (FICA).
Do cloud hosting costs count?
Yes. Hosting costs (AWS, Azure) associated with development and testing environments are considered qualified supply expenses. Production hosting is not eligible.
Is this an audit risk?
All tax credits carry scrutiny. The key is documentation: keep Jira tickets, GitHub commit logs, and payroll records to prove your experimentation process.
Can I claim past years?
Yes. You can typically amend tax returns for the last 3 open tax years to claim missed credits.