Research and development (R&D) tax credits are a great way for businesses to recoup some of the costs associated with innovation. But what happens if you don’t use all your credits in a single year? Don’t worry! The US tax code has you covered.
Carry Forward, Reap the Rewards Later
The beauty of R&D tax credits is that they are flexible. Imagine you have a banner year for innovation, but your tax liability isn't high enough to use all the credits. If this happens, the unused portion can be carried forward for up to 20 years. This means you can claim those credits in future years when your tax burden is higher.
Quick Tip: Check for Payroll Tax Offsets
For qualified small businesses, there's an additional perk. A portion of your R&D credit can be used to offset payroll taxes. If this credit exceeds your payroll tax liability in a specific quarter, it gets carried forward from quarter to quarter, again for a maximum of 20 years.
The Takeaway
Unused R&D tax credits aren't lost, they're simply filed away for future use. This gives you valuable flexibility in managing your tax obligations.
R&D Tax Credit for Manufacturing Companies: What CPAs Need to Know
Manufacturing clients are among the strongest candidates for the federal R&D tax credit, yet many never claim it. The work that qualifies often looks like everyday operations: engineers refining a product, a production team automating a line, or a quality group testing new materials to cut scrap. For CPAs, that creates an opportunity to deliver real value by recognizing qualifying activity early. This guide covers which manufacturing activities and expenses may qualify, how the Four-Part Test applies, what documentation matters, and the questions that can help uncover R&D opportunities with your clients.
Does My Business Qualify for the R&D Tax Credit? The 4-Part Test Explained
"Does my business qualify for the R&D tax credit?" — this guide breaks down the IRS 4-part test, what counts as a business component, and which expenses qualify.
How CPA Firms Can Add R&D Tax Credit Services Without Adding Risk
As compliance work becomes automated, CPA firms are increasingly looking to the R&D tax credit already sitting in their client base to grow advisory revenue—and while concerns about technical eligibility, documentation, and staffing often hold firms back, offering it in-house doesn't require building a specialty practice from scratch.