R&D Tax Credit
Innovation creates value. Documentation determines whether it qualifies.
Companies often perform qualifying research activities without recognizing the credit potential. Engineering, software development, manufacturing improvements, prototyping, testing, and technical problem solving may qualify when the work involves uncertainty, experimentation, and a technological foundation.
R&D happens beyond the laboratory.
The credit can apply to technical work performed across product development, software, manufacturing, engineering, process improvement, and applied problem solving. The question is not whether the company calls itself a research organization. The question is whether its teams attempted to resolve technical uncertainty through a process of experimentation.
New platforms, integrations, automation, security, scalability, and performance work.
Product design, tooling, process improvement, prototyping, and production testing.
Design alternatives, modeling, technical feasibility, and systems improvement.
Means-and-methods innovation, design-build challenges, materials testing, and technical coordination.
Clinical, diagnostic, formulation, device, laboratory, and process-related development.
Recipe development, shelf-life testing, process validation, and packaging improvement.
Workflow tools, systems integration, analytics, interoperability, and technical implementation.
Materials, controls, safety, reliability, efficiency, and systems optimization.
The R&D credit is a technical evidence question.
A credible review maps the company’s activities to the federal four-part test. This page intentionally uses a connected framework rather than another service-card grid so the review feels like innovation analysis, not a real estate or assessment page.
Permitted purpose
The work was intended to develop or improve functionality, performance, reliability, or quality.
Technical uncertainty
The company did not know the appropriate design, method, capability, or technical approach at the outset.
Experimentation
Teams evaluated alternatives through modeling, prototyping, simulation, testing, iteration, or technical analysis.
Technological foundation
The work relied on engineering, computer science, physical science, biological science, or similar technical principles.
Documentation is becoming as important as the credit itself.
The R&D credit remains valuable, but reporting expectations are now more detailed. For many filers, 2026 readiness means moving from general activity descriptions to business-component support, qualified expense mapping, and evidence that ties technical work to the credit calculation.
More business-component detail
Updated reporting expectations require or phase in clearer identification of research activities, project-level information, and qualified research expenses.
Domestic R&E planning changed
New Section 174A restored more favorable treatment for domestic research or experimental expenditures beginning after December 31, 2024, while foreign research remains subject to different treatment.
Payroll tax can matter before profitability
Qualified small businesses may elect to use up to $500,000 of the research credit against payroll taxes, subject to IRS eligibility and application rules.
The calculation starts with technical activity, then follows the cost evidence.
A strong R&D credit review does not begin with a percentage estimate. It begins by identifying qualifying activities, connecting those activities to personnel and projects, and then evaluating whether wages, supplies, contract research, and related costs are supported.
Employees who performed, supervised, or directly supported qualified research activities.
Materials consumed during prototyping, testing, validation, or development activities.
Third-party technical work may qualify when economic risk and rights requirements are evaluated.
Timesheets, project records, technical notes, test results, design history, and interviews support allocation.
A credit is only as strong as the evidence behind it.
The best R&D reviews translate technical work into an organized claim file. That requires narratives, interviews, project evidence, cost support, and a clear bridge between what the teams attempted and what the tax position claims.
What technical uncertainty existed and what alternatives were evaluated?
Who performed, supervised, or supported qualified research work?
Which business components, releases, prototypes, formulas, products, or systems were involved?
How were wages, supplies, and contract research costs identified and allocated?
A workflow built around technical facts, not generic savings claims.
CGM’s role is to help organizations identify activities that may warrant review, gather the right evidence, coordinate with CPA and tax teams, and support a defensible position before a claim is advanced.
Discover
Screen products, projects, software, processes, and technical teams for possible qualified activity.
Map
Connect activities to the four-part test and identify business components for review.
Quantify
Evaluate wages, supplies, and contract research costs that may support the credit calculation.
Substantiate
Build documentation through interviews, source records, narratives, and cost support.
Coordinate
Align findings with CPAs, tax advisors, finance leaders, and technical personnel.
R&D credit review should make technical work visible to finance.
The credit often sits between engineering, operations, product, software, finance, and tax. A disciplined review gives executives a common record: what was attempted, why it was uncertain, who did the work, and what costs are supportable.
Identify experimentation that may not be labeled as research internally.
Translate activity evidence into cost categories and tax documentation.
Questions companies should ask before claiming the credit.
The R&D credit can be powerful, but eligibility depends on technical facts and supportable expense evidence. These questions help determine whether a study is warranted.
Does software development qualify?
It can. Software work may qualify when it involves technical uncertainty, experimentation, and development intended to improve functionality, performance, reliability, or quality.
Can process improvement qualify?
Yes, when the improvement required technical problem solving rather than routine implementation. Manufacturing, automation, production, and systems improvements often deserve review.
What documentation is typically needed?
Common support includes project records, design notes, test results, prototypes, technical interviews, time data, cost records, and narratives connecting activity to the qualification framework.
Can startups use the credit before profitability?
Qualified small businesses may be able to elect to apply a portion of the credit against payroll taxes, subject to IRS eligibility requirements and filing procedures.
Should the CPA be involved?
Yes. CGM’s process is designed to coordinate with the company’s CPA or tax advisor so the technical review, calculation, and filing position remain aligned.
Determine whether your technical work may qualify.
Review projects, qualified activities, expenses, and documentation requirements to determine whether an R&D tax credit study is appropriate.
