R&D tax credit calculator

To see your estimated credit, input your qualified research and development (R&D) expenses below.

How to calculate your R&D taxes

We wrote an entire guide on how to apply for the R&D tax credit yourself. But few founders follow through, which is a shame. They’re too busy to comb back through every financial transaction and apply the four-part test to determine which expenses “qualified.” Nor do they have time to fill out all the paperwork and send it in. And even then, they can’t be sure they won’t be audited. This doesn’t happen often, but it is a real pain, and can distract you for a whole quarter.

R&D credit basics: You “request” to apply the R&D tax credit to your tax return when you file your taxes:

• It’s a federal credit to partially reimburse you for research and development costs that involved scientific and engineering work
• This can include salaries, materials, and contractor pay
• The credit varies by the size of your business
• The maximum credit per year is $500,000

Remember, you can apply for R&D credits to prior years, going back 3-4 years. It doesn’t hurt to look into this. Even a hundred thousand “found dollars” could potentially cover a worker’s salary for a year.

How the R&D tax credit works: The government offers this credit to incentivize “qualified small businesses” to invest in American innovation. It covers some of those R&D salaries, materials, and contractor costs. You are a qualified small business if you are under $75 million in gross sales, and not in a disallowed field like lobbying or financial services. And the credit only applies to R&D work that involves science, technology, engineering, and mathematics (STEM). 

You can apply the credit to building new physical products, developing drugs, innovating on materials, coding software, and similar.

You generally cannot apply the credit to non-STEM work such as writing a book, developing a methodology, or deploying ready-made software like a CRM. (Though it may apply to expenses related to customizing that software.)

To apply for the credit, your tax preparer calculates the amount you’d like to claim, and you claim it while you file your taxes. After the fact, the IRS will review your claim and decide whether you assessed the credit fairly. In some cases, they will audit. The audits are very painful. Founders liken them to a medical procedure. You’ll have to produce all the receipts and justification for every expense, give auditors access to your systems, and answer questions for months.

Because of the risk and complexity, many startups hire an expert. (Pilot can do this work for you.) An R&D tax expert knows the IRS’ moods and changes, can navigate the paperwork, and can use your Pilot books to justify your claim. When an expert does the work for you, it tends to be far more defensible, and they’ll represent you in the audit.