The R&D Tax Credit

Rewarding Innovation

The R&D Tax Credit has both a federal and state component which can make a significant impact on your tax liabilities at both levels. These incentives are designed to reward businesses that take financial risks in the pursuit of technical innovation.

The Research & Development (R&D) tax credit is one of the most valuable — and most misunderstood — incentives in the tax code. The name scares people off: most business owners assume it’s only for scientists in lab coats. It isn’t. If your business designs, develops, or improves products, software, processes, formulas, or techniques, you’re likely doing qualifying work already.

The credit rewards the everyday cost of that work — the wages of the people doing it, the supplies they consume, and the outside contractors you pay to help. For most companies the federal credit is worth roughly 7% to 10% of total qualified research spending — and more when measured against your year-over-year increase in research. Add a state R&D credit on top (Georgia, for example, gives back another 10% of your research increase and can also offset payroll withholding) and the combined federal-and-state benefit often reaches the high teens to low 20s as a share of qualifying spend. Either way, it comes straight off your tax bill, dollar-for-dollar.

*The R&D credit can be stated using different percentages depending on how it is calculated.

Employee wages for people performing, supervising, or supporting research; supplies consumed in the process; 65% of amounts paid to outside contractors; and certain cloud-computing/hosting costs used for development.

There are two federal methods. The Alternative Simplified Credit (ASC) is 14% of the QREs that exceed 50% of your average QREs over the prior three years (6% if you have no prior research history). The Regular Credit is 20% of QREs above a historical base amount — more paperwork, but for some companies a larger result. The ASC is the simpler method because it doesn’t require records going back to the 1980s, but simpler doesn’t always mean bigger — so we calculate both and use whichever produces the larger credit, then coordinate it with any state R&D credit you qualify for (in Georgia, another 10% of your research increase). Stacked together, the combined federal-and-state benefit is often far higher than the federal credit alone.

A qualified small business — generally one with less than $5 million in gross receipts and no gross receipts more than five years ago — can apply up to $500,000 per year of the credit against its employer payroll taxes instead of income tax. That means a pre-profit startup can get cash value from the credit right away.

A tax credit is valuable — it’s real money back in your pocket. But that’s only part of what we deliver.

At Eagle, we’ve built the most thorough, client- and CPA-friendly process in the industry. We handle the heavy lifting so you can stay focused on running your business, communicating with intention and requesting only the data we truly need to eliminate unnecessary back-and-forth. Our goal isn’t just to save you money — it’s to save you time.