{"id":7436,"date":"2026-09-02T16:46:19","date_gmt":"2026-09-02T14:46:19","guid":{"rendered":"https:\/\/leyton.com\/us\/?post_type=article&#038;p=7436"},"modified":"2026-09-02T16:46:21","modified_gmt":"2026-09-02T14:46:21","slug":"how-grants-and-the-rd-tax-credit-work-together-why-more-companies-should-be-claiming-the-credit","status":"publish","type":"article","link":"https:\/\/leyton.com\/us\/insights\/articles\/how-grants-and-the-rd-tax-credit-work-together-why-more-companies-should-be-claiming-the-credit\/","title":{"rendered":"How Grants and the R&amp;D Tax Credit Work Together &amp; Why More Companies Should Be Claiming the Credit"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Many companies assume the <strong><a href=\"https:\/\/leyton.com\/us\/rd-tax-credit\/\">R&amp;D tax credit<\/a><\/strong> is reserved for pharmaceutical labs and technology startups. In reality, the credit applies to a much broader range of businesses that are solving technical challenges, developing new products, improving processes, or experimenting with novel methods. At the same time, organizations receiving <strong><a href=\"https:\/\/leyton.com\/us\/grants-and-incentives\/\">grants<\/a><\/strong> often overlook how those funding sources can impact their eligibility and calculation of the credit.<\/p>\n\n\n\n<h2 id=\"h-understanding-the-relationship-between-grants-and-the-r-amp-d-tax-credit\" class=\"wp-block-heading\"><strong>Understanding the Relationship Between Grants and the R&amp;D Tax Credit<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The federal R&amp;D tax credit, established under Internal Revenue Code Section 41, is designed to encourage businesses to invest in innovation and technical development. Qualified activities generally involve addressing technical uncertainty through a process of experimentation to develop or improve products, software, manufacturing methods, or other business components.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, when research activities are funded by another party, including government agencies, customers, or grant providers, special rules apply. The IRS generally excludes &#8220;funded research&#8221; from qualified research expenses if the company is reimbursed for its costs and does not bear the economic risk of the work. Additionally, a company must typically retain substantial rights to the results of the research for the expenses to remain eligible.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This does not mean companies receiving grants are automatically disqualified from claiming the R&amp;D tax credit. In many cases, only the grant-funded portion of a project may need to be excluded, while self-funded research activities remain eligible. The specific terms of the grant agreement, ownership of intellectual property, and allocation of project costs become critical factors in determining eligibility.<\/p>\n\n\n\n<h2 id=\"h-why-grant-recipients-should-still-evaluate-r-amp-d-tax-credit-opportunities\" class=\"wp-block-heading\"><strong>Why Grant Recipients Should Still Evaluate R&amp;D Tax Credit Opportunities<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">For growing businesses, grants and tax credits are often complementary rather than mutually exclusive incentives. Grants can provide upfront funding to pursue innovative projects, while the R&amp;D tax credit can offset a portion of qualifying expenses that are not reimbursed by external funding sources.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Companies participating in collaborative research with universities, government agencies, or industry partners frequently assume they are ineligible for the credit and never conduct a proper assessment. As a result, significant tax savings may be left unclaimed. A thorough review of contracts, grant agreements, and project accounting records can help identify qualifying expenditures that remain eligible despite the presence of grant funding.<\/p>\n\n\n\n<h2 id=\"h-industries-that-often-overlook-the-r-amp-d-tax-credit\" class=\"wp-block-heading\"><strong>Industries That Often Overlook the R&amp;D Tax Credit<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">While life sciences and software companies have long recognized the value of the credit, many other sectors regularly perform qualifying activities without realizing it.<\/p>\n\n\n\n<h3 id=\"h-manufacturing\" class=\"wp-block-heading\"><strong>Manufacturing<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Manufacturers frequently develop new production methods, improve product performance, reduce defects, automate processes, and test alternative materials. These activities often involve technical uncertainty and systematic experimentation, making them strong candidates for the credit.<\/p>\n\n\n\n<h3 id=\"h-architecture-and-engineering\" class=\"wp-block-heading\"><strong>Architecture and Engineering<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Architecture and engineering firms routinely evaluate design alternatives, develop energy-efficient systems, perform structural modeling, test new construction techniques, and overcome complex site constraints. These activities can satisfy the IRS requirements for qualified research when they involve technical challenges and iterative development.<\/p>\n\n\n\n<h3 id=\"h-construction\" class=\"wp-block-heading\"><strong>Construction<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Construction companies increasingly engage in innovative project delivery methods, advanced building systems, unique structural solutions, and process improvements. Projects involving significant engineering analysis and experimentation may qualify even when the end product is a building or infrastructure asset.<\/p>\n\n\n\n<h3 id=\"h-food-and-beverage\" class=\"wp-block-heading\"><strong>Food and Beverage<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Food manufacturers, breweries, processors, and consumer packaged goods companies frequently develop new formulations, improve shelf life, enhance production efficiency, and evaluate alternative ingredients. These development efforts can create substantial R&amp;D credit opportunities.<\/p>\n\n\n\n<h3 id=\"h-agriculture\" class=\"wp-block-heading\"><strong>Agriculture<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Agricultural businesses often perform research involving crop optimization, irrigation systems, cultivation techniques, equipment improvements, and production efficiency initiatives. These technical efforts may qualify when they involve experimentation and uncertainty.<\/p>\n\n\n\n<h3 id=\"h-aerospace-and-defense\" class=\"wp-block-heading\"><strong>Aerospace and Defense<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Aerospace manufacturers, suppliers, and defense contractors regularly conduct complex engineering activities, product development, testing, and process innovations. Although government contracts can introduce funded research considerations, many organizations still generate significant qualifying research expenses.<\/p>\n\n\n\n<h3 id=\"h-software-and-technology\" class=\"wp-block-heading\"><strong>Software and Technology<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Software development remains one of the most common qualifying activities. New applications, platform improvements, system integrations, scalability enhancements, cybersecurity solutions, and artificial intelligence development often involve qualifying research activities.<\/p>\n\n\n\n<h2 id=\"h-common-misconceptions\" class=\"wp-block-heading\"><strong>Common Misconceptions<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">One of the biggest misconceptions is that a company must invent something entirely new to the world. The R&amp;D tax credit does not require groundbreaking discoveries. Improving an existing product, developing a better process, increasing reliability, improving quality, or solving technical challenges may be enough to qualify.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Another misconception is that only large corporations benefit. Small and mid-sized businesses often qualify and, in some cases, eligible startups can use the credit to offset payroll taxes rather than income tax liabilities.<\/p>\n\n\n\n<h2 id=\"h-conclusion\" class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Companies that receive grants should not automatically assume they are disqualified from the R&amp;D tax credit. While grant-funded research must be carefully evaluated under the funded research rules, many organizations still have substantial qualifying expenses that can generate valuable tax benefits.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">More importantly, the credit extends far beyond traditional life sciences companies. Manufacturers, engineering firms, construction companies, food producers, agricultural businesses, aerospace contractors, and many other organizations may be performing qualifying R&amp;D every day without realizing it. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">By understanding both grant funding rules and R&amp;D credit requirements, businesses can maximize available incentives and reinvest savings into future innovation.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many companies assume the R&amp;D tax credit is reserved for pharmaceutical labs and technology startups. In reality, the credit applies to a much broader range of businesses that are solving technical challenges, developing new products, improving processes, or experimenting with novel methods. At the same time, organizations receiving grants often overlook how those funding sources [&hellip;]<\/p>\n","protected":false},"author":72,"featured_media":7445,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[545,297,439,291,419,421,298,75,306,302],"tags":[97,99,115],"expertise":[370],"class_list":["post-7436","article","type-article","status-publish","format-standard","has-post-thumbnail","hentry","category-agriculture-en","category-architecture-engineering-en","category-construction-en","category-food-beverage-en","category-grants-incentives-en","category-grants-and-incentives-en","category-manufacturing-en","category-rd-tax-credit-en","category-software-en","category-technology-en","tag-grants-en-en","tag-grants-incentives-en","tag-rd-tax-credit-en","expertise-innovation-funding-incentives"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v28.1 (Yoast SEO v28.1) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>How Grants and the R&amp;D Tax Credit Work Together &amp; 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