The research and development tax credit has seen significant expansion over the years, opening up opportunities for numerous businesses to claim its benefits. If you're wondering whether your activities make you eligible for the R&D tax credit, here will shed light on the qualifying research activities.

the diverse range of activities that may fall under the R&D tax credit include:

  • Implementing equipment to enhance processes
  • Conducting environmental testing
  • Testing new concepts and technologies
  • Pursuing research for more efficient designs
  • Reducing product time-to-market through research
  • Analyzing system and functional requirements
  • Designing for LEED/green initiatives
  • Exploring product alternatives
  • Developing new software
  • Creating improved products, processes, or formulas
  • Patent development and application
  • Building prototypes and models
  • Refining research methods, formulations, and products
  • HVAC concept and design
  • Outsourcing activities to external consultants or contractors
  • Applying new research findings effectively
  • Optimizing manufacturing processes
  • Utilizing integration analysis

In the realm of scientific innovation, traditional research and development (R&D) work is a well-established practice, particularly evident in pharmaceutical product development. However, it's crucial to recognize that various industries also engage in R&D activities, making them eligible for valuable tax credits. Let's explore the scope of these industries and the potential benefits they can harness.

Industries Embarking on R&D Tax Credit Opportunities

  • Aerospace
  • Apparel
  • Chemical
  • Consumer Products
  • Cosmetics
  • Engineering
  • Food & Beverage
  • Manufacturing
  • Medical Devices
  • Pharmaceuticals
  • Software Development
  • Telecommunications

Startups and small businesses often find themselves at the forefront of innovation, and the R&D Tax Credit presents an incredible opportunity to foster growth. Qualified companies may be eligible for up to $1.25 million or $250,000 per year for five years in federal tax credits. These credits can be used to offset the Federal Insurance Contributions Act (FICA) portion of their annual payroll taxes.

To be eligible for this enticing tax incentive, a company must meet the following criteria:

  • Have less than $5 million in gross receipts for the credit year.
  • Demonstrate no more than five years of gross receipts.

The Research and Development (R&D) tax credit program presents an incredible opportunity for taxpayers to claim money they've rightfully earned. Despite its benefits, many startups and businesses miss out on this opportunity due to several misconceptions. Let's address these myths and uncover the true potential of the R&D tax credit:


Some entrepreneurs believe that the R&D tax credit program is too good to be true and, as a result, overly complicated. However, the process is more straightforward than it seems. Seeking expert guidance from tax professionals can simplify the application and ensure you maximize the benefits.


One common misunderstanding is that companies need to show significant income or pay income taxes to qualify for the credit. The truth is that qualifying smaller companies and startups with no revenue can still benefit from the R&D tax credit. They can claim up to $250,000 every year as a payroll tax offset, provided they meet certain criteria.


While some think that only businesses with employees can claim credit, it's not entirely true. Although payroll expenses often contribute significantly to the credit calculation, other eligible costs like supply expenses and contractor payments count as well. Even without actual employees, you can carry the credit forward for up to 20 years if you claim it as a payroll tax offset.


One of the greatest misconceptions is that businesses must conduct extensive research to qualify for the R&D tax credit. In reality, the credit is not just for pure research. It applies to companies that design, develop, or improve products, processes, techniques, formulas, or software. Innovation and improvement efforts within the company can also qualify for credit.


Another myth is that R&D must be groundbreaking and entirely new to the industry. In reality, the R&D activities need to be new to your specific company, not necessarily groundbreaking for the entire industry. As long as your activities meet the four-part IRS criteria, you can qualify for the R&D tax credit.


Each year, numerous qualifying businesses miss out on the advantages of R&D tax credits. The IRS data for 2014 revealed a whopping $12 billion in claimed R&D credits, yet many eligible entities, particularly startups without proven profits, fail to take advantage of this opportunity. The primary reason behind this underutilization likely stems from limited awareness among taxpayers and their advisors. Lack of knowledge about the R&D tax credit often leads businesses to overlook this potential benefit, wrongly assuming their activities don't qualify.

MYTH #1 Qualification is Limited.

Contrary to popular belief, many businesses engage in activities that qualify for the R&D tax credit without realizing it. This credit extends beyond specific industries and is accessible to companies of any size, ranging from software developers to breweries. If your business involves technology-based activities, improvements, and customer-oriented solutions, chances are you likely qualify for the R&D tax credit.

MYTH #2 Restricted to Income Tax Application.

One prevailing myth is that the R&D tax credit can only be applied to income tax. However, the truth is that it offers greater flexibility. For qualified small businesses with revenue less than $5 million and within their first five years of operation, this credit can be utilized as a payroll tax offset, up to $250K per year. Even if you have no payroll to offset, you can carry the credit forward to the next quarterly return. What's more, the credit has no expiration date, remaining available until fully used against payroll tax. Furthermore, any unused credits can still prove beneficial, even upon exit.

MYTH #3 Insignificant Savings.

One common misconception is that the R&D tax credit yields negligible savings. However, numerous real-life examples demonstrate the substantial benefits it brings. Companies have saved tens and even hundreds of thousands of dollars through this credit. It's essential to understand that the R&D tax credit is not a mere deduction but a direct reduction of taxes owed. Additionally, our technology-driven solution streamlines the credit claiming process, significantly reducing overall fees and making the savings even more valuable.


GOAT.tax offer comprehensive assistance throughout the entire process of claiming the research and development credit for your small business or startup. They can help clarify the credit's applicability to your specific situation, guide you and your team through the study and calculation process, and provide valuable support during any potential audit.

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Which Industries Qualify?

The R&D tax credit can be applied to a wide variety of industries, including (but not limited to):


Tool & Die

Metal Fabrication

Plastics & Injection Molding

Consumer Products


Architecture & Engineering

Food & Beverage

Financial Services

Mortgage & Banking

Software Development


Contract Manufacturing

Construction / MEP


Oil & Gas


Deb Roth
August 14, 2023

Maximizing Cash Flow Through Government Tax Opportunities

Amid the ongoing challenges posed by COVID-19, numerous small and midsize businesses are grappling with maintaining cash flow, operational capabilities, and their internal research and development initiatives. While the Coronavirus Aid, Relief, and Economic Security (CARES) Act did extend financial aid to these COVID-19-affected enterprises through emergency grants, retention tax credits, and forgivable loans, these solutions offer only temporary cash flow relief, falling short of providing lasting solutions.

Deb Roth
August 14, 2023

Understanding the R&D Tax Credit Carryforward Period

The R&D Tax Credit Carryforward Period refers to the duration during which unused portions of research tax credits can be applied to offset future tax liabilities. This provision is often overlooked by many taxpayers who are eligible for R&D Tax Credits. In most cases, companies that have qualified research expenses but lack current income can carry forward these credits to offset taxes on forthcoming profits. The carryforward period allows credits to remain applicable for up to 20 years. Additionally, the option to carry back credits for the previous year is also available.

Deb Roth
August 14, 2023

Are R&D Tax Credits Convertible to Cash?

Navigating the world of R&D Tax Credits often prompts the question: Can these credits be converted into cash refunds? It's a query frequently posed by businesses seeking to maximize their returns on research and development investments. While R&D Tax Credits themselves aren't inherently refundable, they can still yield a financial windfall in the form of cash benefits.

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