What is the Research and Development (R&D) Tax Credit?
The R&D Tax Credit (26 U.S. Code §41) is a federal benefit that provides companies dollar-for-dollar cash savings for performing activities related to the development, design, or improvement of products, processes, formulas, or software. This credit provides much needed cash to hire additional employees, increase R&D, expand facilities, and more. The credit was enacted in 1981 to stimulate innovation and encourage investment in development in the US. Since then, many states have also passed the R&D Tax Credit. As such, this benefit is available across a wide variety of industries. Some of the common industries that qualify include, but are not limited to:
Estimate Your Benefits Instantly
Use our calculators for an estimate of state and federal benefits or to determine if you can offset payroll tax using the R&D tax credit. It's easy to use and free. If at any time you have questions, contact us. We are here to help you realize your maximum tax benefit.
What are the Potential Benefits of the R&D Tax Credit?
There are several benefits to realizing the R&D tax credit. These benefits can include the following:
- Receive up to 12-16 cents of federal and state R&D tax credits for every qualified dollar
- Create a dollar-for-dollar reduction in your federal and state income tax liability
- Increase earnings-per-share
- Reduce your effective tax rate
- Improve cash flow
- Carry forward the credit up to 20 years
- Perform look back studies to recognize unclaimed credits for open tax years (generally 3 or 4 years)
- Utilize the federal R&D tax credit against payroll tax (applicable to certain startup companies)
Four-Part Test
Qualified research activities are defined by the four-part test outlined below
Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.
Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.
Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.
Experimentation
All of the activities must include a process of experimentation including testing, modeling, simulating, systematic trial and error.
Research and Development Tax Insights

Engineering Firms Loses R&D Credits in Court Ruling
02/12/2025By Michael Maroney | Director, Research & Development Tax Credits The Phoenix Design Group, Inc. v. Commissioner decision issued on December 23, 2024, is an important reminder of the hurdles faced when substantiating research activities for the R&D tax credit. The court denied all research credits claimed by Phoenix Design Group (PDG), a multidisciplinary engineering … Read More

KBKG Tax Insight: Michigan R&D Tax Credit Now Available
02/07/2025By Michael Maroney | Director, Research & Development Tax Credits On January 13, 2025, Michigan Governor Gretchen Whitmer signed HBs 5099-5102 and 4368 to establish the Innovation Fund and the R&D tax credit. With the passage of HBs 5100 and 5101, Michigan will again offer a state-level R&D tax credit. The Michigan research credit offers … Read More

Texas Issues Guidance on Franchise Tax Credits and Carryforward
01/23/2025By Bill Taylor | Principal, Research & Development Tax Credits Recently, the Texas Comptroller’s Tax Policy Division issued guidance on how to apply multiple franchise tax credits and credit carryforwards when more than one is available. The updated guidance clarifies the order in which credits should be applied to maximize tax benefits for taxable entities. … Read More

45X Advanced Manufacturing Production Credit Regulations Update
12/19/2024By Jonathan Tucker | Principal – R&D Tax Credits Republican Senators Tom Cotton (R-AR) and Rick Scott (R-FL) have introduced a resolution (S.J.Res. 119) to overturn final regulations (TD 10010) implementing the Section 45X Advanced Manufacturing Production Credit, a green energy tax incentive created by the Inflation Reduction Act. This mirrors a bipartisan House resolution … Read More

KBKG Tax Insight: Potential Tax Changes Under a Republican Trifecta – Key Issues to Watch
12/03/2024By Jonathan Tucker | Principal, Research & Development Tax Credits Republicans are slated to take control of the legislative and executive branches this coming year, and shifts in fiscal policy will affect taxes, tariffs, and broader economic strategies. KBKG Insight: While there is excitement and talk around “tax cuts,” taxpayers should monitor this changing landscape, … Read More

Key Changes in Accounting Method Procedures for Section 174 Research Expenditures
10/02/2024The IRS has recently issued Rev. Proc. 2024-34, which modifies the method change procedures for specified research or experimental (SRE) expenditures under Section 174. This updated guidance provides important changes for taxpayers seeking to comply with the amended rules following the 2017 Tax Cuts and Jobs Act (TCJA). Here’s a breakdown of the key provisions … Read More

Senate Votes on Tax Relief Bill for IRC 174 R&E Expenditures, Bonus Depreciation and Section 163(j)
08/01/2024By Jonathan Tucker | Principal, Research & Development Tax Credits In a significant move after months of waiting, the Senate voted on the highly anticipated tax relief for American Families and Workers Act, aimed at easing the financial burden on millions of Americans. Championed by Senate Majority Leader Chuck Schumer to bring a vote in … Read More

KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements
07/24/2024By Jonathan Tucker | Principal, Research & Development Tax Credits With the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, significant changes were made to the Internal Revenue Code (IRC), notably to IRC 174. Starting in the tax year 2022, businesses can no longer fully expense their research and experimental (R&E) costs … Read More

KBKG Tax Insight: IRS Updates Form 6765 to Claim R&D Credit
06/25/2024By Jonathan Tucker | Principal, Research & Development Tax Credits On June 21, 2024, the IRS released an updated draft form 6765 – Credit for Increasing Research Activities, the tax form taxpayers must file with their tax returns to claim the R&D tax credit. This revised draft provides much-needed relief for taxpayers by reducing the … Read More

KBKG Tax Insight: IRS Eases Requirements for R&D Credit Refunds
06/20/2024By Jonathan Tucker | Principal, Research & Development Tax Credits The IRS issued new guidance around amending for R&D tax credit refunds postmarked as of June 18, 2024. This guidance reduces the documentation requirement to be submitted for amending by removing two previously required items. KBKG Insight: With just three documents needed to submit the … Read More