R&D Tax Credits: Maximizing Benefits for Tech and Biotech Companies

If you’re in tech or biotech, there’s a good chance you’re sitting on untapped money.

We’re talking about the Research & Development (R&D) Tax Credit—one of the most powerful (yet underutilized) tools for companies building innovative products, platforms, and treatments. This federal (and often state-level) incentive can significantly reduce your tax liability or even generate a cash refund.

So why aren’t more startups claiming it? Because the process feels complicated, and there are a lot of myths floating around. Let’s fix that.

What Is the R&D Tax Credit?

The R&D Tax Credit is a government incentive established under Internal Revenue Code (IRC) §41 to reward businesses for developing or improving products, processes, or software (https://www.irs.gov/pub/irs-regs/research_credit_basic_sec41.pdf). It’s available at both the federal and state levels, and in many cases, startups can use it to offset payroll taxes—even if they’re not profitable.

Real-World Impact: A Series A biotech firm working on preclinical therapies received $250,000 in federal credits against payroll taxes over two years—without ever generating revenue.

Who Qualifies?

Here’s the best part: you don’t need a dedicated lab or a team of PhDs to qualify. According to the IRS, to be eligible for the R&D Tax Credit, your activity must meet four key criteria:

1. Permitted Purpose – Improving a product, process, technique, software, or formula.

2. Technological in Nature – Based on hard sciences like engineering, biology, or computer science.

3. Elimination of Uncertainty – Efforts are made to resolve a technical challenge.

4. Process of Experimentation – You’re testing alternatives or running simulations (https://www.irs.gov/pub/irs-regs/research_credit_basic_sec41.pdf).

If your company is:

• Creating or improving products, software, or processes,

• Experiencing technical uncertainty during development,

• Testing or prototyping,

• And incurring qualified R&D expenses (wages, contractor costs, supplies)…

you likely qualify.

Even internal software tools may be eligible if you develop them to improve business operations.

Stat to Know: Over $12 billion in R&D credits are claimed annually, yet many startups don’t file simply because they assume they won’t qualify (https://www.irs.gov/newsroom/research-credit).

What Expenses Count?

The IRS allows several categories of expenses to be included in your claim, also known as Qualified Research Expenses (QREs):

• Wages for employees performing, supporting, or supervising R&D

• Supplies used during research (excluding land or depreciable equipment)

• Contract Research Expenses – Up to 65% of what you pay external vendors counts

• Cloud hosting expenses directly tied to development (especially for SaaS companies)

For more detail, see IRS guidance on QREs in IRC §41 (https://www.irs.gov/pub/irs-regs/research_credit_basic_sec41.pdf)

Note: Marketing and customer support costs don’t count. This is about innovation, not promotion.

Common Misconceptions

Let’s bust a few myths:

• “We’re too small.” False. Even two-person teams qualify.

• “We’re not profitable.” That’s okay—you can apply the credit to payroll tax if your revenue is under $5M and you’re under 5 years old.

• “We outsource everything.” Contractors count!

• “We didn’t file last year.” You can retroactively amend returns for up to 3 years (https://www.irs.gov/newsroom/irs-sets-forth-required-information-for-a-valid-research-credit-claim-for-refund).

Documentation Tips: Don’t Wait Until Tax Season

To maximize your benefit—and defend it if audited—track your activities and costs as you go. Here’s how:

• Time tracking: Use tools like Harvest, Toggl, or even spreadsheets to log developer/scientist time.

• Project descriptions: Keep summaries of technical challenges and milestones.

• Separate eligible and ineligible costs: Your accountant will thank you.

The IRS now requires detailed project-level information to support refund claims (https://www.irs.gov/newsroom/irs-sets-forth-required-information-for-a-valid-research-credit-claim-for-refund).

Maximize Your Credit: Strategies That Work

• Work with a specialist: R&D credit claims require both technical and tax expertise.

• Coordinate with your accounting system: Flag R&D activity in your chart of accounts.

• File Form 6765 properly with supporting documentation (https://www.irs.gov/forms-pubs/about-form-6765).

• Review your state credits too: States like California, Texas, and Massachusetts offer major add-ons.

Pro Tip: Many companies overpay for big-box R&D consultants. A boutique firm like Achieve can often deliver the same (or better) results at a lower cost.

Final Thoughts: Innovation Deserves a Reward

If you’re building something new, the government wants to reward you for it. But you have to claim it.

At Achieve Accounting, we help tech and biotech companies uncover hidden savings by providing assistance, documentation guidance, and support throughout the R&D tax credit process. While we’re not the specialists who submit claims, we collaborate with your chosen experts to ensure your books are clean, your records are audit-ready, and your claims are fully supported.

Ready to see how much you might qualify for? Let’s talk.