IRC §41 · Federal & State Tax Credit

The R&D Tax Credit. Dollar for Dollar Against Your Tax Bill.

The R&D tax credit is a permanent federal incentive that rewards investment in innovation with a direct reduction in tax liability. Not a deduction. A credit. Available to companies of every size, across virtually every industry.

Engineering-trained specialists. Audit-defensible documentation. Every engagement.

The R&D Credit vs. a Tax Deduction

The R&D tax credit (IRC §41) is a permanent federal incentive that directly reduces your tax bill, dollar for dollar. A tax deduction only reduces your taxable income. The difference in value is significant.

Amount$100,000
A credit is worth this much more than a deduction of the same value
$79,000
on $100,000 at 21% corporate rate
Tax Credit
Reduces your tax bill directly
$100,000
Tax savings
Deduction of Equal Value
Only reduces taxable income
$21,000
Tax savings at 21% rate

What Is the R&D Tax Credit?

IRC Section 41 has been a permanent part of the federal tax code since 2015. It rewards U.S. companies for investing in innovation with a direct, dollar-for-dollar reduction in taxes owed.

Qualifying businesses receive a dollar-for-dollar reduction in their income tax liability. Not merely a deduction. A direct credit against taxes owed.

Credits can offset both income tax and, for qualifying small businesses, payroll (FICA) taxes. Federal and most state credits may be claimed simultaneously. Unused credits carry forward for up to 20 years.

The credit is calculated on your qualifying research expenses above a base amount. Your company's specific credit depends on your R&D history and which calculation method applies. aecre evaluates both methods and applies whichever produces the higher result.

The right calculation method depends on your company's R&D history, company age, and revenue profile. aecre determines the optimal approach for every engagement.
Credit Estimator

What Could Your Credit Be Worth?

$1,000,000 to $2,500,000$25,000 to $62,500
$2,500,000 to $5,000,000$62,500 to $125,000
$5,000,000 to $10,000,000$125,000 to $250,000
$10,000,000 to $25,000,000$250,000 to $625,000

Nearly 40 states offer additional R&D credits that stack on top of the federal credit. State rates typically add 5% to 25% on top of the values shown above.

See What Your R&D Credit Could Be Worth

Three inputs. Real-time estimate. No commitment required.

1 Your industry
Common qualifying activities
2 Total annual W-2 wages
$
All employees. The estimator calculates the qualifying portion based on your industry.
3 Quick qualification check
Does your company improve products, processes, recipes, techniques, or systems?
Does your team try different approaches, run tests, or experiment?
Are the people doing this work based in the United States?
Is your company for-profit, or a startup generating revenue?
Estimated Annual Federal Credit
$--- to $---
Select your industry and enter W-2 wages to calculate.
3-year look-back + current year
$--- to $---
Qualification check

Answer the quick check questions to see if your company qualifies.

This estimate is based on W-2 wages only. Companies with qualifying supply costs, contractor expenses, or cloud computing spend will typically see a higher credit. A feasibility call captures the full picture.
Estimate based on typical industry QRE ratios and federal credit rates. Actual credit depends on your specific qualifying activities, R&D history, and which calculation method applies. State credits not included.

Your Federal Credit Is Half the Story

Nearly 40 states offer R&D credits that stack on top of the federal credit. Rates and structures vary widely. California's credit is structured differently from Texas's, which is structured differently from New York's. aecre identifies and claims all applicable state credits as part of every engagement. For multi-state operators, this often doubles the value of the study.

Qualifying Activities Across Virtually Every Industry

The R&D tax credit is available to any business whose team solves technical problems through experimentation. It is broader than most companies expect. Hover any industry to see qualifying activity examples.
Manufacturing
Qualifying activities
  • New product design, prototyping, and performance testing
  • Process improvement to reduce defects or production costs
  • Materials science and custom tooling development
Oil & Gas
Qualifying activities
  • Enhanced recovery technique development and testing
  • Downhole equipment and drilling tool design
  • Reservoir simulation and modeling under uncertainty
Agriculture
Qualifying activities
  • Crop yield improvement through novel cultivation methods
  • Development and testing of proprietary growing protocols
  • Precision agriculture and application technology
Software & Technology
Qualifying activities
  • New algorithm development and system architecture
  • Developing APIs, platforms, or proprietary frameworks
  • Performance optimization under technical uncertainty
Medical Practices
Qualifying activities
  • Novel treatment protocol development and clinical testing
  • Custom medical device design and evaluation
  • Clinical software and diagnostic tool development
Architecture & MEP
Qualifying activities
  • Custom HVAC and MEP system design and performance modeling
  • Energy simulation, load calculations, and commissioning
  • Developing proprietary design standards or methodologies
Renewable Energy
Qualifying activities
  • Renewable energy system design and optimization
  • Battery storage technology development
  • Grid integration and smart control system design
Commercial Real Estate
Qualifying activities
  • Building performance optimization and energy modeling
  • Innovative HVAC and building automation design
  • Smart building technology integration
Defense & Aerospace
Qualifying activities
  • Advanced materials research and structural testing
  • Navigation and sensor system development
  • Structural design innovation under performance uncertainty
Food & Beverage
Qualifying activities
  • New formulation development and stability testing
  • Process improvement for shelf life, safety, or consistency
  • Novel packaging material and preservation technology
Construction
Qualifying activities
  • Building envelope and structural system innovation
  • Integration of new materials or construction methods
  • BIM-based performance simulation and analysis
FinTech
Qualifying activities
  • Proprietary risk algorithm development
  • Novel fraud detection model architecture
  • Custom data pipeline and processing infrastructure
Biotech & Lab Research
Qualifying activities
  • Novel compound synthesis and efficacy testing
  • Laboratory instrument and analytical method development
  • Clinical trial protocol design and data analysis
Medical Devices
Qualifying activities
  • Device prototyping and biocompatibility testing
  • Regulatory submission R&D and validation studies
  • Manufacturing process development for new devices
Don't see your industry?
Not sure if your work qualifies? The answer is free.Book a Free Assessment
Built on engineering expertise

Why Choose aecre for R&D Tax Credit Studies?

Most R&D credit providers are tax professionals who subcontract the engineering work. aecre is built the other way: engineering-trained specialists who understand how technical problems actually get solved, producing documentation that meets IRS examination standards from day one.

Engineering-trained team

We understand how technical problems get solved. Our documentation reflects how the work actually happens, not a questionnaire.

Audit-defensible from day one

Technical narratives, QRE documentation, and contemporaneous records are structured to meet examination standards on every study.

Boutique and partner-led

Partners handle every engagement. Senior attention from scoping through filing. You are never routed to junior analysts.

How aecre Compares

Big-Box Providers
Documentation
Templated questionnaires. Thin technical narrative.
Audit Risk
Often cited in IRS audit challenges due to generic documentation.
Who Does the Work
Sales rep intake, then handoff to analysts you've never met.
Industry Depth
Generic approach across all industries.
Big Four and National Firms
Documentation
Variable. Often junior-led with partner review at the end.
Audit Risk
Generally lower, though quality depends on who is assigned.
Who Does the Work
Junior associates with senior review. Partner time is limited.
Industry Depth
Broad but generalist. Deep technical knowledge varies.
aecre
Documentation
Engineering-led technical narratives built to IRS examination standards.
Audit Risk
Built to withstand examination. Substantiation file retained on every study.
Who Does the Work
Partners handle every engagement. You are never routed to junior analysts.
Industry Depth
Deep focus across technical industries. Built from engineering expertise, not tax templates.

The Four-Part Test

Every qualifying activity must satisfy all four criteria defined in the IRS audit techniques guide for research activities. If your team tries different approaches to solve a problem, you are likely already performing qualified research. Select any step to explore.

Most companies that qualify do not think of their daily work as "R&D." But if your team is working to improve how something functions, figuring out the best way to get something to work, or trying new approaches because the old ones were not good enough, there is a strong chance that work qualifies right now.

Important: The Credit Does Not Require a Breakthrough

The R&D tax credit does not require inventing something new to the world. If the solution is new to your company and required genuine experimentation to find, it qualifies. A rancher trialing a new grazing protocol, a food manufacturer reformulating a product, or a medical practice developing a novel treatment approach can all qualify even if other companies have done similar work. The uncertainty is about whether it works for you, not whether anyone has ever done it.

01
Permitted Purpose
02
Technological in Nature
03
Elimination of Uncertainty
04
Process of Experimentation

01. Permitted Purpose

The work must be intended to develop or improve the functionality, performance, reliability, or quality of a product, process, formula, technique, or system. The improvement does not need to be commercially deployed or even successful. Failed experiments count.

Example: Manufacturing

A manufacturer develops a new metal alloy for structural components to improve tensile strength. The first three prototypes fail. The failed trials still qualify because the intent was to improve the product.

This prong applies equally to a food company improving a recipe, a rancher improving a grazing system, or a medical practice developing a better treatment protocol.

02. Technological in Nature

The work must rely on principles of engineering, computer science, physics, chemistry, biology, agronomy, or other physical or life sciences. Business judgment, marketing analysis, and financial modeling do not satisfy this prong. Technical judgment does.

Example: Oil & Gas

An operator tests enhanced recovery techniques in a low-permeability formation using reservoir simulation to model subsurface fluid flow. The work relies on petroleum engineering and physics, satisfying the requirement.

This prong is met by any work grounded in a recognized scientific discipline. Agronomy, food science, materials science, and clinical science all qualify.

03. Elimination of Uncertainty

The work must seek to resolve uncertainty about whether or how a capability, method, or design can be achieved. If the answer was obvious from the start without technical investigation, it does not qualify. But if your team was not sure whether their approach would work, that uncertainty is the signal.

Example: Software

A software company builds a real-time recommendation engine. At project start, the team cannot determine whether a neural network or a gradient-boosted model will meet the latency and accuracy requirements simultaneously.

For agriculture, the uncertainty might be: will this fertilizer protocol outperform the current approach in these soil conditions? For food manufacturing: will this reformulation maintain texture when the preservative is removed?

04. Process of Experimentation

Your team must evaluate one or more alternatives through testing, trialing, modeling, iteration, or other systematic methods. It does not need to be a formal laboratory process. Trialing different approaches and evaluating results qualifies.

Example: Agriculture

A grower trials five different nutrient application protocols across controlled plots to determine which produces the best yield and soil health outcomes in drought conditions. The systematic comparison of alternatives qualifies.

Most companies are already doing this without calling it experimentation. If your team tests different approaches, compares results, and adjusts based on what they learn, you are running a process of experimentation.

What Counts as a QRE?

Qualified Research Expenses (QREs) are the spending categories eligible for the credit. If your team is doing qualifying work, most of their time is already generating credit value.
Employee Wages
Pay for employees who do qualifying work, directly manage it, or directly support it. Includes field staff, operators, and technical leads.
Typically 60-80%
Contractor Costs
65% of amounts paid to outside contractors performing qualifying work. The contractor must not retain the right to use the results.
Typically 15-25%
Supplies & Materials
Physical materials used up in the qualifying process. Includes seed, chemical inputs, raw materials, and consumables used in testing.
Typically 5-15%
Cloud & Computing Costs
Development servers, cloud compute environments, and testing infrastructure used directly in qualifying activities.
Varies
Software Licenses
Tools used directly in qualifying research: simulation, modeling, analysis, or testing software.
Varies

Common QRE distributions across our completed studies. Your specific composition depends on industry, scope, and contractor mix.

No Income Tax Liability? The Credit Still Pays.

Early-stage and pre-revenue companies can apply R&D credits directly against payroll taxes. Companies building credit banks during unprofitable years can deploy those credits against future tax liability for up to 20 years.
Payroll Tax Offset
$500,000
Per year in FICA offset

How Do R&D Credits Offset Payroll Taxes?

Qualifying small businesses can apply up to $500,000 per year in R&D tax credits directly against the employer share of Social Security (FICA) taxes. Real cash flow in the same quarter the election is made.

The election is made on Form 6765 and applied quarterly against payroll deposits. No income tax liability required.

Qualification thresholds
  • Gross receipts under $5,000,000 in the credit year
  • No more than 5 years of gross receipts history
  • Qualifying research activities under IRC §41(d)
Worked Example
Company typeEarly-stage SaaS, Year 3
Gross receipts$1,800,000
Qualifying wages (engineering)$1,200,000
Qualifying contractor spend$300,000
Total estimated QREs$1,395,000
Estimated federal credit range$35,000 to $87,000
Applied against FICA taxesUp to $87,000 / year

Growing past the $5,000,000 threshold? Unused credits carry forward for up to 20 years. Credits built during early-stage years apply against income tax as the company scales.

Your R&D Spend Today Reduces Your Tax Bill Tomorrow

R&D tax credits do not expire when your company is unprofitable. They accumulate into a credit bank that deploys the moment profitability arrives.

Build
Pre-profit years
Every year your team performs qualifying R&D, credits accumulate. Startups can also offset up to $500,000 per year in payroll taxes immediately.
Credits earned
Deploy
Profitability arrives
Your accumulated credit bank applies directly against your first income tax liability, reducing your effective tax rate from day one.
Bank deployed
Compound
Ongoing benefit
New credits continue to reduce your tax bill every year. The benefit compounds as your qualifying activities grow with the business.
Year over year
Credits carry forward for up to 20 years. Nothing is lost if profitability takes longer than expected. Your qualifying R&D spend is building tax value whether you use it this year or a decade from now.

How We Work

Four steps from first conversation to filed credit. aecre handles the technical documentation and IRS filing. Your job is to give us access to the people who do the work.
1
Discovery & Scoping
You provide
An overview of your business, team structure, and the kinds of problems your people work on
We deliver
A preliminary credit estimate and qualification assessment at no cost or commitment
2
Engineering-Led
Technical Interview
You provide
Access to the people who do the hands-on problem-solving at your company
We deliver
Documented qualifying activities, technical uncertainty narratives, and complete QRE identification
3
Engineering-Led
Credit Calculation
You provide
Payroll records, expense reports, and contractor invoices for the study period
We deliver
Credit calculation under the optimal method, Form 6765 preparation, and state credit identification
4
Filing & Audit Support
You provide
A connection to your CPA for return filing coordination
We deliver
A complete, CPA-ready filing package with full audit-defense documentation

Can I Claim R&D Credits for Prior Tax Years?

If you have never claimed R&D credits before, the prior three tax years are open for amendment. aecre identifies and claims all available prior-year credits as part of every engagement, at no upfront cost.
Prior year
2023
Open for amendment
Claimable
Prior year
2024
Open for amendment
Claimable
Prior year
2025
Open for amendment
Claimable
Current year
2026
Active tax year
In progress

For companies that have been investing in qualifying activities for years without claiming credits, the prior-year opportunity is often larger than the current-year credit.

Book a Free Assessment

Get Your Free
Feasibility Assessment

We assess your qualifying activities, estimate your credit value across federal and state programs, and give you a clear picture of what IRC §41 is worth for your company, before you commit to anything.

Book a Free Assessment

No obligation. No commitment. $0 to determine eligibility.

Or reach us directly.

Taylor Beamer, PE
Partner, Operations and Engineering
Brandon Carroll
Partner, Growth and Strategy
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R&D Tax Credit Frequently Asked Questions

If your question is not here, it takes one conversation to answer it. That conversation costs nothing.
Probably more likely than you think. The credit is available across virtually every industry to companies that work on improving products, processes, techniques, recipes, or systems. The work does not need to be novel to the world. It only needs to be new to your company and to have required genuine experimentation. The best way to confirm is a free feasibility conversation.
The Four-Part Test is the IRS standard under IRC §41. All four criteria must be satisfied: (1) Permitted Purpose: improving functionality, performance, reliability, or quality. (2) Technological in Nature: relying on engineering, science, or technical disciplines. (3) Elimination of Uncertainty: resolving uncertainty about capability or design. (4) Process of Experimentation: evaluating alternatives through testing or systematic trial.
The federal credit typically equals approximately 2.5% to 6.25% of annual qualifying research expenses. On $1,000,000 in qualifying spend, that is approximately $25,000 to $62,500 per year. Nearly 40 states offer additional credits that stack on top. aecre evaluates both federal methods and identifies all applicable state credits.
Yes. Qualifying small businesses with less than $5,000,000 in gross receipts and no more than five years of revenue history can apply up to $500,000 per year in R&D credits directly against payroll (FICA) taxes. The election is made on Form 6765 and applied quarterly.
Yes. The look-back period is three years. You can amend open tax returns to claim credits for qualifying activities performed in 2023, 2024, and 2025, in addition to the current year 2026. aecre conducts multi-year look-back studies in every engagement.
QREs include: wages for employees who perform, manage, or support qualifying work; 65% of contractor costs; supplies and materials consumed in research; cloud computing costs; and software licenses used directly in qualifying research.
aecre works directly alongside your firm throughout every engagement. We handle all technical documentation and QRE identification. Our deliverable is a complete, CPA-ready package: documented qualifying activities, QRE calculations, Form 6765 preparation, and full audit-defense support. We do not displace CPAs. We bring the technical documentation capability that most CPA firms do not have in-house.
It depends on how they reached that conclusion. Many generalist CPAs apply the Four-Part Test conservatively or are unfamiliar with how it applies outside traditional technology or manufacturing. The test is broader than most people expect. We have worked with clients whose prior advisors passed on the credit and identified significant qualifying activities. A conversation costs nothing.