Everything You Need to Know
About the R&D Tax Credit

Over 65 industries can qualify for the R&D Tax Credit by innovating or improving products, processes, or technologies.

Download the White Paper arrow_circle_down

    Schedule a free consultation


    Thank you for reaching out! Our tax specialist will get in touch with you in less than 24 hours

    What is R&D Tax Credit?

    Established in 1981, the Research & Development Tax Credit is a federal incentive that allows companies to reduce income tax liability in the current tax year, and receive a cash refund for taxes paid in the last three years.

    Many states have implemented their own version of the R&D Tax Credit, and qualifying businesses can claim both! In 2015, when the Protecting Americans From Tax Hikes (PATH) Act was put into place, the R&D Tax Credit became permanent, which revised qualifications that greatly expanded the eligibility for businesses to qualify. With these changes, qualifying small businesses may claim the Payroll Tax Credit to offset some of their payroll tax liability.

    Many businesses are unaware that their daily operations could qualify for a dollar-for-dollar Tax Credit, irrespective of company size or industry:

    ✅Engineering & Architecture ✅Manufacturing✅Agriculture✅Construction

    ✅Software & Technology ✅Food and Beverage ✅Life Sciences ✅EnergyTechnology

    Understanding the New R&D Tax Credit Rules Under the OBBB Act (July 2025)

    Signed into law on July 4, 2025, the One Big Beautiful Bill (OBBB) introduced sweeping tax changes, with one of the most impactful updates focused on R&D tax treatment.
    The bill reverses the 2022 requirement to amortize research and development (R&D) expenses over five years.
    Now, U.S. businesses can once again fully deduct domestic R&D expenses in the year they are incurred, starting with the 2025 tax year.

    Key Points Summary Changed for R&D Tax Treatment in 2025

    • Distance
      U.S.-based R&D expenses can be immediately expensed under Section 174.
    • Language
      Foreign R&D must still be amortized over 15 years.
    • Rocket_Launch
      Small businesses may retroactively apply expensing rules to tax years 2022–2024.

    What are the options for Prior Years (2022-2024)?

    Amend Returns

    Allows full year deductions in original year (Small businesses only)

    Pro: Ability to generate cash refund
    Con: Admin burden, additional expenses to amend returns, waiting period to receive refund

      1-Year Accelerated Deduction

      Deduct remaining capitalization balance in 2025

      Pro: Simple, allows for large deduction in 2025
      Con: No cash refund for prior years. Creates possible NOL carry-forward (non-immediate benefit)

        2-Year Accelerated Deduction

        Split remaining capitalization balance over 2025 and 2026

        Pro: Smooth tax planning, larger deductions in 2025 & 2026 than if amending.
        Con: Delayed benefit, less cash now

          R&D Tax Credit
          Four Part Test

          Each company must meet the criteria for all 4 tests to qualify for the R&D Tax Credit

          • Business Component

            Has the company demonstrated that the information being discovered was to develop a new or improved product, process, computer software, technique, formula, or invention, which is to be held for sale, lease, license, or further used in its trade or business?

          • Uncertainty

            Has the company demonstrated that it tried to learn something new about the product or process being changed in order to improve it and has it demonstrated that the product or process could not be improved without going through this discovery process?

          • Technology

            Can the company demonstrate that its development of a business component relied upon the principles of the physical or biological sciences, engineering, or computer science?

          • Experimentation

            Has the company demonstrated that it went through a process of elimination, trial and error, or other evaluation of alternatives in order to arrive at the new or improved product or process?

          What activities qualify for the R&D Tax Credit?

          • New_Releases
            Are you developing or designing new and innovative products or processes
          • Upgrade
            Are you improving existing products, processes, or prototypes?
          • Rebase
            Are you reviewing the potential of several alternatives or methods during the development or improvement process?

          R&D Tax Scenario Software

          This company has developed software for individual organizations focused on serving community needs. They have responded to a growing need for faster, safer, and more secure ways of data sharing & collaboration.
          • Wages $3,637,792
          • Contract Research Expenses $33,602
          • Supplies $0
          • Cloud Service Providers $99,579
          • Total R&D Spent $3,770,973

          Credit Amount

          $287,334 Calculate your claim arrow_outward arrow_outward

          R&D Tax Scenario Engineering

          This company aims to accelerate the success of solar in leading utility-scale energy production by maximizing solar plant value with defensible and actionable reference solar data.
          • Wages $3,136,947
          • Contract Research Expenses $0
          • Supplies $576,520
          • Cloud Service Providers $0
          • Total R&D Spent $3,713,467

          Credit Amount

          $350,347 Calculate your claim arrow_outward arrow_outward

          How can this credit impact your business?

          • account_balance
            Immediate reduction in your tax liability
          • autopay
            Secure credits for future tax liabilities
          • monetization_on
            Increased business valuation
          • credit_score
            Freeing up cash for your business

          Get ahead of additional in 2025 Form 6765 reporting Requirements

          Form 6765 is the form used to file and claim the Credit for Increasing Research Activities on a company’s yearly income tax return. Form 6765 is broken into 4 sections for tax year 2023 and prior:
          Section A – Regular Credit
          Section B – Alternative Simplified Credit
          Section C – Current Year Credit
          Section D – Qualified Small Business Payroll Tax Election and Payroll Tax Credit

          • assignment
            Tax Year 2024 Taxpayers must include:

            🡢 The number of business components, officer wages, acquisitions/dispositions_Section E
            🡢 Total qualified research expenses_Section F

          • fact_check
            Tax Year 2025 Taxpayers must include:

            🡢 Section E & Section F
            🡢 Names and types of business components, information sought to be discovered, a breakdown of QREs per business component, and a breakdown of wages by level of involvement _Section G

          • gavel
            Section G Exception

            🡢 Payroll eligible Qualified Small Business
            🡢 OR QREs < $1.5M and gross receipts < $50M are exempt

          What is IRS Form 6765? 

          Form 6765 is the form used to file and claim the Credit for Increasing Research Activities on a company’s yearly income tax return. Form 6765 is broken into 4 sections:  

          Section A – Regular Credit 

          Section B – Alternative Simplified Credit 

          Section C – Current Year Credit 

          Section D – Qualified Small Business Payroll Tax Election and Payroll Tax Credit

          How to complete Form 6765? 

          • 1

            First, please be sure to consult with your accountant or a tax professional whenever completing tax documents. 

          • 2

            For sections A and B, only one is ultimately completed. These are the two different methodologies for calculating the R&D credit, and companies are permitted to use the method that yields the larger credit. Therefore, it is recommended companies calculate the credit using both methodologies, and only complete Form 6765 with the more beneficial of the two. 

          • 3

            Section C is always completed, however, it does not require calculations of it’s own as it uses information readily available in other areas. 

          • 4

            Section D is only used if a company qualifies as a Small Business and is eligible for the Payroll Tax Credit. The credit calculation remains the same and is completed on Section A or B, however, Section D allows for a company to elect to treat all, or a portion of, the identified credit as an offset to their quarterly payroll tax liability.

          Not paying income tax?

          You can still qualify for the Payroll Tax Credit. Companies with less than $5 million in gross receipts can use the R&D tax credit to offset payroll taxes up to $250,000 per year.

          What is the Payroll R&D Tax Credit?

          The Payroll Tax Credit is a subset of the R&D Tax Credit that allows qualifying small businesses to reduce their payroll tax liability.

          The R&D Tax Credit can help startups and small businesses offset some of their payroll tax liability. In order to claim the Payroll Tax Credit, companies must meet certain requirements, including qualifying as a Qualified Small Business.

          To be considered a Qualified Small Business, your company must not have gross receipts for any years preceding the 5 tax year period ending with the credit year. In addition, the year you are claiming, gross receipts must be below $5M.

          Payroll Tax Scenario Software

          The Company has developed a unique digital platform designed to help mortgage professionals work and collaborate with lending, title/settlement, notarial, and loan servicing partners.
          • Wages $1,259,980
          • Contract Research Expenses $8,512
          • Supplies $0
          • Cloud Service Providers $0
          • Total R&D Spent $1,268,492

          Credit amount

          $126,849 Speak with our team arrow_outward arrow_outward

          The Complete R&D Tax Credit Guide 2026 

          FAQs

          All you need to know about R&D Tax Credit

          Can’t find the answer you’re after? Please contact our team

          How do I know if I qualify?

          A quick call with our expert will determine if you qualify. If you have developed anything new or improved, something based on the hard sciences (engineering, computer science, chemistry, biology, physics, etc.) then it’s worth having a chat!

          How long will it take to get my claim?

          We are always working to make our process as efficient as possible. Once you provide all necessary financial and technical documents to our team, on average, our R&D studies last about 1-2 months, depending on the size and complexity of the study.



          What is the impact on the Research & Development Tax Credit Under Section 41 of the Internal Revenue Code?

          Beginning with the 2022 tax year, research expenditures are now required to be capitalized and amortized over either five years for expenditures incurred in the U.S. or 15 years for those incurred outside the U.S., both using the mid year convention. Although this mandate to amortize typically results in an increase to current-year taxable income by deferring deductions into the future, it does not prevent a company from continuing to claim the research tax credit under Section 41 to help reduce its tax liability.

          Does it increase my chance of an audit?

          Claiming the R&D Tax Credit does not increase your chances of an audit. However, any time you amend your tax returns, the chance of an audit slightly increases. What’s important is that you have an experienced team that provides audit defense to back you up.

          Why is the technical report important?

          This report details the Research & Development activities being conducted and the expenses associated with all activities. The core of the R&D Tax Credit is being able to tie financial expenses with technical research activity. This nexus is what builds the credit and allows companies to claim the benefit on their tax return. Without this nexus, the credit is null. This is where Leyton’s technical report comes in.  

          Get your R&D claim estimate today!

          Contact us arrow_outward arrow_outward