Most business owners think the R&D tax credit is only for labs, patents, or software startups. In reality, the IRS
definition is much broader, and businesses doing everyday problem-solving may already qualify.
Here’s the part that surprises most owners. The IRS definition of research is much wider than the word suggests.
If you’ve ever redesigned a process, tested a new method, or built something that didn’t quite work the first time,
you may already be doing qualified research. You just never called it that. The businesses that benefit most tend
to be the ones who never thought to ask, because nothing about their day-to-day feels like a laboratory.
What Actually Counts as “Research” in the IRS’ Eyes?
It’s not about lab coats. It’s about a specific four-part test, and real businesses pass it more often than you’d think.
● Permitted purpose: You’re trying to improve a product, a process, a formula, or a piece of software.
● Technological in nature: The work leans on hard sciences, engineering, or computer science, not just
trial and instinct.
● Elimination of uncertainty: Going in, you genuinely didn’t know if your approach would work, or how
to make it work.
● Process of experimentation: You tried, tested, or evaluated more than one way to solve the problem
before landing on an answer.
Meet all four, and the work potentially qualifies, whether or not anyone in the building has ever said the word
research out loud. Notice what’s missing from that list: there’s no requirement that the project succeed, that it
be groundbreaking, or that you file a patent at the end. Plenty of qualifying research ends in a dead end, and it
still counts.
Could This Actually Apply to a Business Like Mine?
Maybe, and it’s worth a real look before you assume no.
Take custom construction. A firm developing new building methods, materials, or systems, working through
CAD models and prototyping along the way, is often doing exactly the kind of experimentation the credit was
built for. The technical risk is real. The trial and error is real. That’s the point.
The same logic shows up elsewhere. A manufacturer tweaking a production line to cut waste, a food company
reformulating a recipe to hit a shelf-life target, a software team rebuilding a system architecture to handle more
load: all of it can qualify, as long as there’s genuine technical uncertainty being worked through, not just
execution of something already known to work.
What usually doesn’t qualify is the routine stuff sitting right next to it:
● Standard drafting or documentation work with no open technical question
● General administrative time, management, or bookkeeping
● Changes made purely for looks, style, or marketing, with no functional uncertainty
● Market research, surveys, or consumer preference testing
The credit follows the uncertainty, not the industry. That’s why a construction crew and a software team can
both qualify for the same reason, even though their work looks nothing alike.
What Is This Actually Worth to Me?
Say your business spends $100,000 on qualified research in a year. That figure typically includes wages for the
people doing the work, supplies consumed in the process, and a portion of contractor costs tied to it. Depending
on your specific facts and the calculation method your adviser uses, the resulting federal credit might land
somewhere in the 6% to 10% range of that spend, roughly $6,000 to $10,000 in this example. Many states offer
an additional credit on top of that.
That’s not a small rounding error. It’s real money back for work you were likely already doing, whether or not
you ever planned to ask for it. And unlike a deduction, a credit reduces your tax bill dollar for dollar, which is
part of why it’s worth the extra attention.
What Changed With the New Tax Law?
This is the part worth paying attention to right now. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA)
was signed into law, and it created a new section of the tax code, Section 174A, that permanently restores
immediate expensing for domestic research costs. For tax years beginning after December 31, 2024, businesses
can once again deduct qualifying domestic R&D expenses in full, in the year they’re incurred, instead of
spreading them out over five years the way the 2017 Tax Cuts and Jobs Act had required.
There’s also a retroactive piece worth knowing about. Small businesses, generally those averaging $31 million
or less in annual gross receipts, may be able to go back and amend 2022 through 2024 returns to claim the
deductions that were previously stuck in amortization, which can mean a real refund. Larger businesses can’t
amend, but they do have options to accelerate what’s left of those unamortized costs into 2025 and 2026.
One caveat that hasn’t changed: foreign research still has to be capitalized and amortized over 15 years. Where
the work actually happens still matters, so this is a good moment to think about how your R&D location affects
your tax picture, not just your talent pool.
How Can We Help You Find What You’ve Already Earned?
You don’t have to figure out on your own whether your work qualifies, or reconstruct a year of technical
decisions from memory. At J.R. Martin & Associates, we help business owners look at what they’re already building, testing, and improving, and find the credits they’ve quietly earned along the way.
Together we can:
● Walk through your projects and flag what may qualify as research under the four-part test
● Estimate what a federal, and where applicable state, credit could realistically be worth for your
business.
● Apply the new Section 174A rules correctly, including whether amending 2022–2024 returns makes
sense for you.
● Build a documentation habit now, so next year’s claim is easier to support than this year’s
Your facts matter here more than in almost any other part of the tax code, which is exactly why this isn’t a do-it-
yourself decision. Reach out for a conversation about what you’re actually building, and let’s find out together
whether you’re sitting on a credit you’ve never claimed.