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Software developers, manufacturers, engineering firms, government contractors, medical device companies and many others perform qualified research without calling it that. We identify eligible activities, calculate the credit, build the support the IRS now requires, and defend it.
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Section 41 gives a credit for increasing research activities: generally 20% of qualified research expenses above a base amount, or 14% under the alternative simplified credit. Qualified research expenses are wages for people doing, directly supervising or supporting the research, supplies used in it, and 65% of contract research. Each project, or business component, must pass the four-part test in section 41(d): a permitted purpose, technological uncertainty, a process of experimentation for substantially all of the activities, and reliance on the hard sciences, engineering or computer science.
Section 174A, added by the 2025 tax law, lets businesses deduct domestic research and experimental costs immediately for tax years beginning after 2024; foreign research is still amortized over 15 years. Under section 280C, you either reduce that deduction by the credit or elect a reduced credit of 79%. Qualified small businesses can apply up to $500,000 a year of credit against employer payroll taxes under section 41(h).
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A flour miller's credits were denied because it could not prove its activities were qualified research; credit studies were not enough without evidence of experimentation. Penalties were not imposed because it relied on its advisors.
A shipbuilder lost its credit because it could not show that substantially all (at least 80%) of the activities for its vessels were a process of experimentation.
A poultry producer's trials partly succeeded: one trial run as a documented experiment with control groups qualified, while others were rejected as routine data recast after the fact.
Courts look for evidence created during the research, not studies prepared years later.
Our approach
Map projects and people to potential business components.
Collect technical evidence and time support for each component.
Compute the credit, the 174A deduction and the 280C election.
File Form 6765, payroll offset forms and support any IRS review.
Questions
If your question isn't here, call (703) 880-8412 and you'll reach a person.
Any business that tries to develop or improve a product, process, software, formula or technique and faces technical uncertainty resolved through experimentation. It is not limited to laboratories; engineering, software, manufacturing and architecture firms often qualify.
Section 41(d) requires a permitted purpose (function, performance, reliability or quality), technological uncertainty, a process of experimentation for substantially all of the activities, and reliance on principles of physical or biological science, engineering or computer science.
From tax years beginning after 2024, domestic research costs can be deducted immediately instead of amortized over five years. Eligible small businesses could also apply the change to 2022 through 2024.
Yes. A qualified small business, generally under $5 million in gross receipts and within its first five years of receipts, can apply up to $500,000 a year against the employer share of payroll taxes.
Records made during the work: project descriptions, hypotheses, test results, design iterations and time records tied to each business component. The revised Form 6765 asks for business-component detail.
No contemporaneous evidence, activities that were routine testing or quality control, research funded by a customer, and failing the substantially all test.
Latest updates
Authorized representatives can now make balance-due, amended return, extension, proposed assessment and federal tax deposit payments for business clients online. Appropriate authorization for the client and tax matter is required.
Source: IRS (IR-2026-134)
For 2027 the joint-return standard deduction rises to $33,200, the estate tax basic exclusion to $15,480,000, the annual gift exclusion to $20,000 and the Section 179 expensing limit to $2,640,000. Our advisors recommend revisiting year-end gifting and equipment purchase plans with these figures in mind.
Source: IRS (IR-2026-133)
All 6,576 nominated census tracts, including 2,594 rural tracts eligible for enhanced benefits, become Opportunity Zones on January 1, 2027 for ten years. Investors with capital gains should review the new map before committing funds.
Source: IRS (IR-2026-132)
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