The four-part test
How the IRS defines qualified research
Permitted purpose
Is the goal a new or improved product, process, software, technique or formula?
Eliminating uncertainty
At the start, was it unclear whether the work could be done, how, or which design to use?
Process of experimentation
Did you test alternatives through modeling, simulation, prototyping or trial and error?
Technological in nature
Does the work rely on engineering, computer science, physical science or biological science?
What counts
What spending counts toward the credit
The credit is based on qualified research expenses. Three categories make up most claims.
01
Wages
Pay for the employees who do, supervise or directly support the work, such as engineers, developers, machinists and technicians.
02
Supplies
Materials and parts used up in the research, such as metals, components, prototypes and test samples.
03
Contract research
Fees paid to outside firms or contractors for qualifying work. Generally 65% of the cost counts toward the credit.
Some computer and cloud costs used directly in the research can also count, depending on the facts. General information, not tax advice.
Examples
What qualifies and what does not
Qualifying work looks like engineering and problem solving, not routine production or market research.
Often qualifies
Designing or improving a product, part or tool
Developing or improving a process, production method or formula
Building or improving software, automation or data systems
Prototyping, testing and redesigning
Projects that hit problems or did not work out
Usually does not qualify
Work done after the product is in commercial production
Copying or reproducing an existing product
Market research, surveys and customer studies
Routine testing, quality control and data collection
Cosmetic, style or seasonal design changes
Quick self-check
Could your business qualify?
Read these eight statements. If two or more sound like your business, it is worth a closer look.
We design, build or improve products, parts or tools.
We develop or change production processes or methods.
We write or customize software, automation or data systems.
We build prototypes, run trials or test alternatives.
Some projects took several attempts or did not work at first.
Engineers, developers, machinists or technicians do this work.
We spend on materials, testing or outside contractors for it.
We have not claimed the R&D credit, or are not sure we claimed all of it.
Two or more? Start the screening
Our free 5 to 10 minute screening checks your projects against the four-part test.
FAQ
R&D tax credit qualification questions
Straight answers on what counts, what does not and who can claim.