Does my company qualify for the federal R&D tax credit?

Usually, yes, if your people have improved a product, a process or software and had to work out how. The federal R&D tax credit (IRC §41) rewards the attempt, not a laboratory: it returns 6% to 10% of the wages paid to technical staff, dollar for dollar off federal income tax, every year. Longtable prepares a documented study; your CPA confirms what qualifies and files.

Most owners who dismiss the credit do so for one reason. They picture white coats. The statute does not. It asks four plain questions about the work your company already does, and the answers decide the claim. This article walks those four questions, the activities that commonly pass them, what the credit is worth in an illustration, what to do if the company is not yet profitable, and what the IRS expects to see behind the number.

What does the IRS actually mean by research?

The credit has been in the tax code since 1981 and permanent since 2015. To qualify, an activity has to pass what practitioners call the four-part test. Stripped of the jargon, the four parts are:

1. You tried to make something work better. A product, a process, a technique, a formula or software, new to your company or improved in function, performance, reliability or quality. It does not have to be new to the world.
2. You leaned on engineering or science to do it. The work rested on principles of engineering, computer science, physics, chemistry or biology, not on taste, market research or management judgment.
3. You did not know at the start whether it would work. There was uncertainty about whether you could do it, how you would do it, or what the right design was.
4. You tried more than one way. You evaluated alternatives through modelling, simulation, prototyping, trial and error or systematic testing.

Notice what is absent. There is no requirement that the work succeed, that it produce a patent, or that it happen in a dedicated facility. A production engineer who spends a quarter getting scrap rates down by changing tooling, sequencing and settings, and who did not know going in which change would hold, is doing qualified research in the eyes of §41.

Which everyday activities count?

Across the companies Longtable sees, the qualifying work is rarely labelled research internally. It sits inside normal operations:

• Manufacturers: new or improved products, new tooling and fixtures, process changes to raise yield or throughput, automation, material substitutions, first-article and pilot runs.
• Software and technology companies: new features that required architectural decisions, performance and scalability work, integrations with uncertain outcomes, algorithm development, security engineering.
• Food and beverage: formulation, shelf-life work, scale-up from test kitchen to line, packaging that has to survive distribution.
• Construction, engineering and architecture: design alternatives evaluated for a specific structural, mechanical or energy problem, not the routine application of a known solution.
• Contract manufacturers and job shops: the engineering that goes into quoting and building a part the shop has not made before.

The wages that count are the wages of the people doing, directly supervising or directly supporting that work: engineers, developers, chemists, technicians, and the share of a plant manager's time spent on the project rather than on the schedule. Supplies consumed in the work and a portion of what you pay outside contractors for it can count as well. The page for the federal R&D tax credit sizes an illustration from technical wages in a few seconds.

How much is the credit worth?

In Longtable's illustrations, the federal credit lands at 6% to 10% of qualifying technical wages after the §280C election, and it is a credit, not a deduction. A deduction trims the income you are taxed on. A credit comes straight off the tax itself, dollar for dollar. Your research wages stay deductible as well.

An illustration, not a quote: a company paying $1,000,000 a year to the engineers, developers and technicians doing the work would illustrate a federal credit of $60,000 to $100,000 for that year. The following year, if the work continues, the credit does too. Which end of the band applies depends on the method the CPA elects and on how the company's current spending compares with its recent history. Your own CPA confirms the figure, the year and the method.

Many states add a credit of their own on top of the federal one. Those vary widely and belong in the conversation with your CPA rather than in a general article.

What if the company is not profitable yet?

A credit is only useful against a tax, and an early-stage company may owe no income tax. Congress addressed this directly in §41(h). A qualified small business, meaning one with under $5 million in gross receipts in the credit year and no gross receipts in any year more than five years earlier, can elect to apply up to $500,000 of the credit each year against the employer share of payroll tax. That turns a credit the company cannot use into a reduction in a tax it pays every quarter.

For an established employer, payroll tax is a cost in its own right, and the R&D credit is only one of the ways to lower it. The same owner who qualifies for the credit often has a separate conversation about Section 125 payroll tax planning for the whole workforce. They are different mechanisms; they are frequently reviewed in the same meeting.

What draws scrutiny, and what protects you?

The IRS does not object to the credit. It objects to claims it cannot trace. What draws scrutiny is a claim without documentation: a percentage of payroll asserted after the fact, with nothing showing which projects, which people and which costs stand behind it.

What protects a claim is the opposite, prepared before the return is filed:

• Projects: a short description of each effort, the uncertainty it set out to resolve, and the alternatives tried.
• People: who worked on each project and what share of their time it took, supported by timesheets, project systems, calendars or reasonable contemporaneous estimates.
• Costs: the wages, supplies and contractor amounts tied to those people and projects, reconciled to the payroll register and the general ledger.

That is the documented study. At Longtable it is prepared by specialists, engineers and tax professionals working from the company's own records to the standard the IRS applies. Your CPA then confirms what qualifies, how much and in which year, and files Form 6765 with the return. The study is also what makes next year's claim routine instead of a fresh exercise.

Why does the government want you to claim it?

Because it put the money on the table on purpose. The credit is a permanent, deliberate incentive to do technical work in the United States. The scale of that work is hard to overstate: in 2024, gross domestic spending on research and development across the United States and China combined reached $2.04 trillion (OECD, 2024), and the figure is rising. Congress's view, expressed in a credit that has outlived every administration since 1981, is that American companies improving what they make and how they work should be rewarded for it. Research expensing under §174A is permanent again as well, so the deduction for the same work no longer has to be spread over years.

A company that qualifies and does not claim is simply leaving a lawful, intended benefit with the Treasury.

What should an owner do next?

Three steps, none of which commit you to anything.

1. Run the illustration. The R&D page sizes an illustrative credit from your technical wages in seconds. It is an illustration, not a quote.
2. Bring it to a 30-minute call. Your CPA is welcome; no documents are needed yet. Longtable walks the four-part test against your actual projects.
3. If it holds, the study. Longtable prepares the documented study; your CPA confirms and files. Every term is in writing before anything is signed.

The credit sits beside the other ways Longtable helps owners keep more of what they build; the full set is on the strategies page. This article is education, not tax advice. The figures are illustrations. Your own CPA confirms what applies to your company, in which year, and files the claim.