What Is The R&D Tax Credit And How Can Your Business Benefit?

What Does the R&D Tax Credit Cover?

To qualify, your activities need to pass the IRS’s Four-Part Test:

1. Purpose: You’re trying to improve a product, process, software, formula, or invention.
2. Uncertainty: You’re solving “how-to” questions—figuring out the best way to make something better.
3. Experimentation: You’re testing and exploring different approaches to find the best solution.
4. Tech-Based: Your work is grounded in science or technology, like engineering, biology, or computer science.

Expenses That Count:

• Wages for employees working on R&D.
• Supplies and materials used during the process.
• Payments to contractors helping with R&D projects (up to 65%).
• Cloud computing and software costs directly related to your R&D work.

What Should You Track?

The key to successfully claiming the R&D Tax Credit is keeping great records. Here’s what you’ll need to stay on top of:

1. R&D Activities

• Document the projects or tasks aimed at improving your products or processes.
• Show how your activities meet the Four-Part Test.

2. Employee Work Time

• Track who’s working on R&D and how much time they spend.
• Include brainstorming, testing, and development efforts.

3. Material Costs

• Keep receipts for materials used in your R&D projects.
• Focus on items directly tied to your work (not general office supplies).

4. Contractor Expenses

• Save contracts and invoices for any third-party help.
• Clearly define the scope of their work related to R&D.

5. Experimentation Process

• Capture your testing methods, models, and results.
• Save notes, designs, and any prototypes you’ve developed.

6. Financial Records

• Document wages, salaries, and overhead costs connected to R&D activities.

7. Project Timelines

• Record start and end dates for projects to demonstrate progress.

How to Make the Most of the R&D Tax Credit

1. Use Tools to Stay Organized: Project management tools can help you track time, expenses, and activities. Need one, let us know we have GREAT partners. 
2. Work with a Pro: A HIVE tax expert can ensure you’re maximizing your credit while staying compliant.
3. Keep Everything Up to Date: Regularly review and update your documentation.
   
   

Why Should You Use the R&D Tax Credit?

The R&D Tax Credit is more than just a tax incentive—it’s a chance to reduce costs and reinvest in your business. For startups and small businesses, it can even help offset payroll taxes. Whether you’re improving your processes or building something entirely new, this credit supports your efforts to innovate.

Ready to see if your business qualifies? Start tracking your activities today and reach out to KPOTeam@hivekpo.com.

 Innovation deserves recognition—and the R&D Tax Credit is here to do just that!