Claiming the Research and Development (R&D) Tax Credit can potentially increase cash flow, reduce your Federal tax rate, and give you a Federal and State dollar-for-dollar income tax reduction. But before you complete IRS Form 6765 to claim the R&D tax credit, it’s important to know that it can only be applied to qualifying research activities.

What is Qualified Research Activity?

Also known as a QRA, a qualified research activity is defined as a specific effort to develop new products, fabrication processes, or software, or improve existing ones. The IRS has established a Four-Part Test (as outlined in IRC §41(d)) to determine if research activities are eligible, which include:

1. Business Component Test

The activity must be related to the performance, quality, reliability, or new or improved function of a business component of the taxpaying company. A business component is defined to be “any product, process, software, technique, formula or invention used by the taxpaying company in trade or business.”

2. Technological Uncertainty Test

The activity must involve the elimination of uncertainty. An activity entails uncertainty if the taxpayer did not know one or more of the following:

Whether the desired results could be achieved
The specific means of achieving the desired result
The appropriate design of the business component being developed

3. Process-of-Experimentation Test

“Substantially all” of the activity must involve a “process of experimentation” involving more than one possible approach toward achieving the result, where the capability or method of achieving the result is uncertain at the outset of the activity.

4. Technological‐in‐Nature Test

Activities that are undertaken to discover information must be technological in nature. For example, experiments used to eliminate uncertainty must rely on principles of physical or biological sciences, engineering, or computer science.

Examples of Qualified Research Activities

The following are examples of general activities that qualify for the R&D tax credit:

Creating improved products, processes, formulas, software, and techniques
Automating or improving internal manufacturing processes
Designing tools, jigs, fixtures, and molds
Integrating new equipment
Development of data center, big data, and data mining tools
Integration of APIs and other technologies
Development of financial or pricing models
Hiring outside consultants to perform any of the listed activities
Manufacturing new or improved products
Developing prototypes, first articles, models
Evaluation of alternative materials
Development of firmware
Network hardware and software development and optimization
Developing simulators
Development of risk management systems

Activities such as providing training, customer service support, payroll, research relating to style or cosmetic design, attending conferences, and management studies are not considered qualified research activities.

Examples of Expenses That Qualify as Research Activities

The following expenses can qualify for research activities:

Employee compensation
Contracted services

Payroll records, financial records, vendor invoices, and/or contract research expenses are often needed as proof of the expenses. 

It can be difficult to know exactly which activities qualify as research activities, which is why it’s beneficial to work with professional R&D tax advisors.

How We Can Help is powered by Source Advisors, a leading tax consulting firm providing R&D tax credits for over 4 decades. Source Advisors can assist your small business with:

Identifying your qualifying development activities and expenses
Computing your R&D tax credits
Preparing any supporting documents that are needed
Assisting with the payroll tax offset

Founded on the basic principle that the R&D tax credit should be available to companies of all sizes without fees burdening the benefit, the automated software platform is backed by 350+ years of collective R&D tax credit experience. This is what sets us apart from any other platform. Our people and our experience.

Now is a good time to reexamine prior, current, and future R&D activities in order to take advantage of the R&D tax credit, regardless of industry. If you think your company might be performing work that qualifies, don’t let the potential tax savings go unclaimed. can help you claim vital tax savings to reinvest in your business and fuel your next big project.

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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
July 6, 2023

Which Businesses Can Benefit From the R&D Tax Credit?

The R&D tax credit can benefit a wide variety of businesses from many industries, including startups, manufacturing firms, technology companies, financial companies, software development businesses, and many more. The R&D tax credit enables businesses to increase cash flow and savings, reduce the Federal income tax rate, and receive Federal and State dollar-for-dollar income tax reductions.

Riz Malik
June 22, 2023

How to Make Your R&D Tax Credit Defensible

Claiming the R&D tax credit can potentially help your business offset increased cash flow. However, simply completing IRS Form 6765, Credit For Increasing Research Activities, doesn’t guarantee the IRS will approve your claim. 

Learn a few key things you can do to ensure your R&D tax credit is defensible in the case of an IRS or state audit.

Alex Pak
June 7, 2022

What is the 4-Part Test for Claiming R&D Tax Credits?

It’s no secret the Research & Development (R&D) tax credit offers potentially significant cost savings for your business, as well as increased cash flow, a reduced federal tax rate, and dollar-for-dollar income tax reduction. However, if you plan on claiming the R&D tax credit, your Qualified Research Activities (QRAs) and Qualified Research Expenses (QREs) will have to pass the Four-Part Test.

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