8 Signs Your Business May Qualify for R&D Tax Credits (Even If Your Industry Says It Doesn’t)

The R&D tax credit under IRC §41 is not reserved for tech startups and pharmaceutical labs. The requirements are set out in the statute and Treasury regulations and look at what your team is doing, not what industry the business is positioned in. Here are a few signs that your team should consider investigating the R&D tax credit for your company.

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1. You’re trying to solve a problem without knowing the answer going in.

This is technical uncertainty, a prong of the four-part test the IRS established to determine if an activity qualifies for the R&D taxcredit. It shows up any time your team doesn’t know at the outset whether adesign will work, how to build it, or what the right method of completing itis.

- Industry example: a software company building a new feature that needs to process significantly more data in real time, without knowing at the outset whether their existing architecture can scale to handle it or what system design will actually get them there.

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2. You test more than one approach before landing on a final version.

Trying multiple methods, formulas, or configurations and measuring the results is a process of experimentation, another required element to meet the four-part test.

- Industry example: a food and beverage manufacturer running trial batches to reformulate a product, remove an ingredient, or extend shelf-life.

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3. Your team includes people applying technical or scientific principles,not just following instructions.

A third requirement of the four-part test: the work must be grounded in engineering, physical science, biological science, or computer science. There doesn’t need to be an employee or team that contains the word “research” in their title; the work simply needs to be rooted in science.  

- Industry example: a livestock operation testing new feed formulations and evaluating their effect on health outcomes and herd performance.

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4. A project of yours has failed, or even partially failed.

The four-part test does not require a successful project. A failed prototype or abandoned approach can still show that your team saw and aimed to resolve genuine technical uncertainty and performed a process of experimentation.

- Industry example: a fastener company attempting to utilize a new material or size for a bolt, but the new product did not meet strength specifications.

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5. You keep specs, version histories, or internal notes, even informally.

While this isn’t a qualification on its own, if your team consistently records changes, notes on materials, code, chemicals, etc. that they’ve used to attempt to create or iterate on a product or service, it may be an indication that they’re performing qualifying activities. Teams performing this kind of work tend to leave a paper trail without thinking of it as documentation.

- Industry example: a software company tracking sprints, architecture decisions, or feature iterations.

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6. You raise or breed something living and track the outcomes.

Agricultural producers are often surprised when they realizethey can claim R&D tax credits. The George v. Commissioner decision reaffirmed that livestock and poultry research can satisfy the technological in nature prongof the four-part test, since biological science is squarely within the scopethe regulations recognize.

- Industry example: livestock, poultry, and crop operations raise or breed something living and experiment with nutrition to improve the products.

7. You’re changing a process to meet a new regulation or specification.

Adapting an existing product or process to meet a new regulatory standard can still involve real technical uncertainty about how to meet the requirement, and that uncertainty is what matters, not whether the underlying goal was compliance rather than innovation for its own sake.

- Industry example: aerospace and defense suppliers adjusting designs or manufacturing processes to meet new FAA orDepartment of Defense requirements.

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8. You assume that because this is always how the business has run, it’sroutine.

Many businesses perform qualifying activities so often that they assume that they won’t qualify. Their R&D is their everyday, and“routine work” does not fall under the R&D tax credit requirements. Research may feel routine to your team, but if they’re performing tasks that meet the four-part test, it may still qualify.

- Industry example: metal fabrication and tool and die shops redesigning tools, dies, or manufacturing processes for a new part.

A Reason to Act Now, Not Later

Though some businesses think that R&D tax credit studies are simple, they require time and effort to compile. The earlier your company starts compiling these things, the better. Additionally, when there is a “time crunch” on something as nuanced as the R&D tax credit, things can slip through cracks. It’s best to be proactive, so that no qualifying activities are missed, and your claim is maximized to the best of its potential.