What the Heck is the R&D Tax Credit (and Why Should Startups Care)?

If you’re building a product, writing code, or figuring out how to do something that hasn’t been done before—congrats, you might be doing R&D. And the government actually wants to reward you for it.

The R&D Tax Credit is a federal incentive that gives you money back for developing new or improved products, processes, or software. Most people assume it’s just for big pharma or massive engineering firms, but that’s old news. Startups and small businesses can absolutely qualify—especially if you're paying W-2 employees to build tech.

Here’s the best part: If your startup is pre-revenue or just getting rolling, you can actually use the credit to offset up to $500K of your payroll taxes each year. That means more runway without raising another round.

What Counts as R&D?

• Building a new feature or tool

• Developing or improving software

• Experimenting with different methods to solve technical problems

• Prototyping or testing new concepts

What Doesn’t?

• Market research

• Purely cosmetic UI work

• Buying or using off-the-shelf tech without modifying it

TL;DR

If you're paying engineers or product people to figure stuff out—you probably qualify. And the savings can add up quickly.

Thinking about it? Start by talking to a tax firm that knows startups. It’s not just free money—it’s fuel for what you’re building next.