You do not need to start with an “R&D” department.
Businesses describe development work in different ways. One team calls it engineering, another calls it product improvement, and another calls it software development. The name of the department does not decide whether an activity qualifies for a research credit.
A useful starting point is a specific project. What did the team want to create or improve? What did it not know how to accomplish at the outset? How did it evaluate possible solutions? Which records show that work? The answers help us understand your project more than an industry label does.
This guide introduces the review. It is not an eligibility determination for your business. Paribus Advisors can discuss your activities and the documentation and calculations needed to evaluate a potential credit with your tax team.
Four questions about your development work.
The federal qualified-research framework is commonly described as a four-part test. The following questions are a practical introduction; the complete legal requirements and exclusions still need to be applied to the facts.
- What was being improved? Identify the product, process, software, or other business component and the intended improvement in function, performance, reliability, or quality.
- What was uncertain? Explain the technical uncertainty about capability, method, or design that the work was intended to resolve.
- What was the technical foundation? Describe the relevant engineering, computer science, or physical or biological science involved.
- How were alternatives evaluated? Identify the experimentation process, such as modeling, testing, or other systematic evaluation.
Use these questions as a discussion outline for the people who know the project. Avoid answering only at the company level. Different projects, and different activities within a project, may require different treatment.
What kinds of work may qualify?
The following are illustrative starting points for a conversation, not examples of automatically eligible claims. Each would need a factual review, expense analysis, and consideration of exclusions.
Product and manufacturing development
A team is trying to improve a component’s performance under a demanding operating condition. It considers different designs, builds prototypes, and records test results. Useful follow-up questions include what was technically uncertain, how the designs were compared, and when the development work ended and routine production began.
Software development
A software team evaluates alternative approaches to a technical problem and keeps design notes and test results. The review should distinguish that work from routine updates, configuration, and support. The purpose and use of the software also matter; some internal-use software is subject to additional requirements.
Process improvement
A business tests alternative process configurations to address a technical limitation. A project narrative should explain the alternatives, the evaluation, and the technical result. A general statement that a process became faster or cheaper does not, on its own, explain qualifying research.
Separate experimentation from ordinary business work.
A project may contain activities with different purposes. Planning a commercial launch, responding to customer preferences, testing a technical alternative, and performing routine quality checks are not interchangeable. The review needs enough detail to distinguish them.
Federal rules contain exclusions, including categories involving work after commercial production, duplication, adaptation, and certain funded or foreign research. Contracts and the timing of activities can therefore matter as much as a project description. The full rules should be applied before including an activity.
Ask your team to describe what happened without trying to fit every task into a credit narrative. A clear boundary between the development work and other activities makes the resulting analysis more understandable.
Tell us what your team is working on.
Choose two or three representative projects. For each, prepare a short description of the objective, the technical questions, the alternatives evaluated, and the people involved. Note where the work occurred and which years are relevant. Include a few examples of the records you retain.
You do not need to estimate a credit amount before calling. The activity review comes first; financial records and historical inputs then inform the calculation. Avoid assuming that all engineering salaries or all development purchases will qualify.
If you work with an accountant, bring that person into the discussion early. Your tax team can help identify the relevant years, return considerations, and existing records. Our accounting and advisor partnership page explains how to organize that collaboration.
Call Paribus Advisors to tell us what your team develops or improves. We’ll explain which records would help us assess the work and what study preparation would involve.
Answers to common R&D credit questions.
- ASC or regular method: compare the calculation
Compare ASC and regular R&D credit calculations with a worked example. Understand historical inputs, the 6% ASC rule, base amounts and method review.
- Does your software development qualify?
Explore U.S. R&D credit eligibility for software development, technical experimentation, internal-use software and records that connect engineering to expenses.
- R&D credits for manufacturing process development
Understand manufacturing R&D credit questions involving process trials, prototypes, technical uncertainty, production boundaries and supporting cost records.
- R&D credit records when timesheets are incomplete
Missing project timesheets? Learn how to assess R&D credit evidence, employee wage allocations, technical records and the limits of retrospective estimates.
- The R&D payroll tax credit for startups
Understand the startup R&D payroll tax credit: qualified small business tests, the $500,000 election ceiling, filing timing and documentation preparation.
- What does an R&D tax credit study cost?
Understand what affects R&D tax credit study fees, what to compare in a proposal, and how to discuss your project. Paribus Advisors has no up-front fees.
- California R&D tax credit studies
Get help evaluating California research expenses, reviewing state calculation methods, and preparing an R&D tax credit study package for your tax team.
- Which employee wages qualify for the R&D tax credit?
Review employee wages for the R&D tax credit: qualified services, mixed duties, supporting records, and wage schedules your accountant can follow.
- Contract research, funded research, and your R&D credit
Understand why R&D contracts need review: payment obligations, research rights, contractor costs, and records supporting a research credit study.
- R&D tax credit studies for engineering firms
Explore R&D tax credit study preparation for engineering firms: technical uncertainty, design alternatives, client contracts, wages, and project evidence.
- Internal-use software and the R&D tax credit
Evaluate internal-use and dual-function software for the R&D tax credit, with a focus on software purpose, technical evidence, and study preparation.
- Preparing for your first R&D tax credit study
Prepare for your first R&D tax credit study with clear steps for project discussions, records, expense review, accountant coordination, and deliverables.
- What are qualified research expenses?
Understand qualified research expenses (QREs), common cost categories, exclusions, and supporting records. Call Paribus to discuss your project’s expenses.
- What is the R&D tax credit four-part test?
Understand the R&D credit four-part test with plain-language questions, a practical example, and evidence to discuss with Paribus Advisors.
- Do prototypes, materials, and supplies qualify?
Review supplies and prototype costs for an R&D credit: material use, equipment exclusions, mixed production runs, and the records behind an expense claim.
- Can failed or abandoned projects qualify for an R&D credit?
Learn why a failed or abandoned project can still warrant an R&D credit review, what evidence matters, and which costs need separate evaluation.
- What is a business component for the R&D credit?
Understand business components for an R&D credit study, how they differ from project codes, and how to connect activities, expenses, and Form 6765 reporting.