If your team builds product, you are probably generating a credit you aren’t claiming — and if you’re pre-profit, it can pay you through payroll taxes, up to $500,000 a year. The credit is real. What separates the ones that hold from the ones that don’t is eligibility screened honestly and documentation kept as you go.
from $1,500 flat — eligibility screen & coordination
The engineering study is quoted separately by the study firm and passed through — never marked up.
Usually, yes. Building software or hardware is qualified research when it meets the IRS four-part test, and most genuine product development does — new features, architecture, performance work, prototypes. The screen is whether your development activity qualifies and whether the records behind it will survive examination. That’s the part I do.
SaaS and web apps, mobile apps, AI products, hardware and devices, biotech tools, and any company paying engineers to build something that didn’t exist before. Funded or bootstrapped, profitable or not — the pre-profit version of this credit is often the most valuable.
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If a study has already been done and you want it pressure-tested before filing, say so at intake — that’s a defined engagement of its own.
The number that matters isn’t the credit you claim — it’s the credit you keep. If a claim is reduced on examination, the repayment, interest, and any penalty are yours, not the study provider’s. My work is aimed at the largest credit that holds up. My fee is flat and set before any work begins, so it never depends on the size of the credit.
A qualifying small business — under $5 million in gross receipts, within five years of its first revenue — can elect to apply up to $500,000 of R&D credit per year against payroll taxes rather than income tax. That gives the credit cash value years before profitability, funded by development work you were doing anyway.
Federal law changed in 2025: domestic R&D expensing is again immediate, permanently. Small businesses had until July 6, 2026 to apply that change retroactively to 2022–2024; that election has closed. The credit itself has not — it can still be claimed on amended returns for years that remain open, generally 2023 and 2024. The durable value is forward-looking: the ongoing credit, the payroll offset, and an expensing posture set correctly from this year on. California layers its own credit with its own rules, which the screen covers.
The credit is a top examination target precisely because the market is full of aggressive providers. What survives is unglamorous: project records tied to the four-part test, time allocation kept as you go, and a study built by engineers who will stand behind it. Set up in an afternoon at the start of the year, it’s routine; reconstructed two years later under audit, it’s expensive.
Planning an exit, or holding real estate too? The credit is one line of a larger picture — QSBS, entity elections, and depreciation planning live in the Tax & Estate practice, and the two engagements share one intake.
Often, yes — that’s the point of the payroll offset. A qualifying startup (under $5 million in gross receipts, within five years of first revenue) can apply up to $500,000 of credit per year against payroll taxes rather than income tax. The screen determines eligibility before anyone commissions a study.
Under the alternative simplified method, the federal credit is 14% of qualified research expenses above half of your average for the prior three years, or 6% of the current year’s expenses if you had none in any of those years. Qualified expenses are mainly wages for people doing or directly supervising the research, research supplies, and 65% of contract research. California’s credit is computed separately.
Work that satisfies the four-part test: a permitted purpose (new or improved functionality, performance, reliability), elimination of technical uncertainty, a process of experimentation, and grounding in computer science or engineering. In practice: building new features and architecture usually qualifies; routine maintenance, cosmetic changes, and configuration usually don’t. The screen sorts your actual work into those buckets honestly.
Treat it with care. The credit is real, and amended-return claims are still possible for open years — generally 2023 and 2024. The market around it includes providers whose studies don’t survive examination. Ask any provider two questions: is your fee a percentage of the credit, and will you defend the study under audit at no additional cost? The answers tell you most of what you need.
No — the computation is engineering work that belongs with a specialist study firm, and I coordinate it rather than pretend to do it. My fee is flat and set before any work begins, so the screen is aimed at one thing: the largest credit your work supports, documented well enough that you keep it.
Yes — California maintains its own research credit with its own computation and its own conformity rules, and the state and federal claims need to be consistent. The screen covers both layers.
This is planning and coordination work. The firm does not accept tax controversy engagements and does not represent taxpayers in examinations of studies performed elsewhere. Where the IRS has already made contact, the matter calls for controversy counsel, and the firm will say so.
Written and reviewed by Ian Daily, California attorney · Last reviewed
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Your taxes modeled, and the structure that changes them designed and drafted — one attorney, one plan, no product commissions.
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Entity formation done so the paperwork matches the plan — including the founder equity and IP assignment most DIY filings skip.
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The core agreements a young company needs, customized to how you actually sell — with usage notes so you know which one to send.
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I read every submission personally and reply within one business day — including when the honest answer is that this isn’t a fit.