For accounting professionals looking to add value beyond compliance work, federal and state research and development (R&D) tax credits represent an incredible opportunity. These credits are among the biggest—and most overlooked—tax benefits available to small businesses. With anticipated changes in 2025 making these credits even more attractive, now is the perfect time to develop expertise in this area.
In this post, we’ll explain why R&D credits matter, outline how to identify qualifying clients, and provide practical tips to help you become your clients’ go-to resource for maximizing these valuable credits.
Table of Contents
- What are R&D tax credits? Why are they important?
- How to Qualify Clients
- Qualifying Activities and Industries
- How to Advise Clients on 2025 R&D Tax Credit Changes
- 5 Tips for Maximizing R&D Credits
What are R&D tax credits? Why are they important?
R&D tax credits are a general business tax credit under IRS section 41 for companies that incur R&D costs in the United States. The federal government offers more than $12 billion to businesses for qualified R&D activities, which include developing or improving existing technologies, products, and materials.
For accounting firms, mastering R&D credits opens the door to:
- Offering a distinctive value-added service beyond traditional compliance work.
- Building higher-value advisory relationships with clients.
- Increasing revenue through specialized service offerings.
- Enhancing client retention by demonstrating tangible financial impact.
For your clients, these credits can provide significant financial benefits, potentially funding innovation and growth. Yet year after year, qualifying businesses leave money on the table simply because they’re unaware of the credit or don’t know how to claim it.
How to Qualify Clients
The first step in maximizing R&D credits is identifying which clients might qualify. Here’s a systematic approach to help you get started:
1. Dig into your existing client data.
Conduct an inventory of your client base and maintain a spreadsheet of those who seem to qualify. If you use a client relationship management (CRM) platform, leverage it to automate this process.
2. Assign a communications champion.
Identify one person in your firm to take charge of client R&D credit communications once you’re ready to share this expertise.
3. Develop qualifying questions.
Create a short list of questions to help you identify potential candidates. Here are 10 good starter questions:
- Is my client within a qualifying industry?
- Are my client’s business activities being performed within the United States?
- Is my client growing or developing new products, solutions, or processes?
- Has my client ever taken any tax credits?
- Was my client established in the last 5 years or less?
- Does my client hire programmers, coders, or engineers?
- Does my client have at least 10 or more employees?
- Does my client use 1099 contractors to augment staff?
- Is my client profitable and taxable?
- Does my client’s gross payroll exceed $500k?
Once you’ve qualified clients, you’ll have an accurate list for communication purposes. But first, it’s important to understand qualifying activities and industries so you can speak confidently about these credits.
How to Recognize Qualifying Activities and Industries
When you fully understand what qualifies for R&D credits, you’ll be better positioned to help clients claim what they’re entitled to. Here’s what you need to know:
Common Qualifying Activities
- Product: Developing a new or improved product. Examples include medical devices, pharmaceuticals, and cosmetics.
- Manufacturing process: Changing the layout of a manufacturing facility to improve an existing process. Another example is a dentist who creates dentures or crowns in-house.
- Software: Creating a new website or platform for public or internal use. This can also include hiring developers in the US to work on new platforms or apps.
- Invention: New software technologies that utilize new algorithms or automations—something that is patentable.
- Technique: A new way to brew beer or distill whiskey.
- Formula: New vaccines, medicines, or therapeutics.
Common Qualifying Industries
High-Potential Industries
- Software development/SaaS companies
- Contract manufacturers and custom fabricators
- Food science and specialty food production
- Medical device manufacturers
- Pharmaceutical and biotechnology firms
- Architecture and engineering firms
- Specialty chemical manufacturers
Often-Overlooked Industries
- Construction (especially design-build firms)
- Agricultural operations with process improvements
- Brewing and distilling operations
- Dental practices with in-house labs
- Machine shops and tool manufacturers
Note: While the above represents common qualifying industries, this list is not all-inclusive. Even companies without a dedicated R&D department may be eligible for credits based on their commitment to developing new products, processes, software, or inventions.
How to Advise Clients on 2025 R&D Tax Credit Changes
Your clients look to you for timely, accurate advice on everything tax-related, including R&D credits. Becoming an expert in this area helps you elevate your advisory role. Here’s what you can advise clients on:
- If they qualify overall
- What constitutes qualified research activities
- How qualified small businesses can apply their credits
- If they can retroactively collect credits from past years
- How they can use tax credits to offset taxes owed
- Tips and tactics for maximizing R&D credits each year
In 2025, several key changes are anticipated for R&D tax credits that you should share with your clients:
5 Key Tax Credit Changes Expected in 2025
1. Restoration of Immediate Expensing
A proposed bill, the American Innovation and R&D Competitiveness Act of 2025, aims to reverse the amortization requirement introduced by the 2017 Tax Cuts and Jobs Act (TCJA). If passed, businesses could immediately deduct R&D expenses instead of amortizing them over five years.
2. Enhanced Reporting Requirements
The IRS has revised Form 6765, requiring more detailed qualitative data about R&D activities. Businesses must now disclose information such as the number of business components used in credit calculations and provide a breakdown of qualified research expenditures (QREs) by type.
3. Focus on Emerging Technologies
The definition of qualified research is expanding to include areas like artificial intelligence, machine learning, and renewable energy. Companies investing in these fields may benefit significantly if their activities meet the required criteria.
4. Increased Accessibility for Startups
Provisions allowing startups to apply R&D tax credits against payroll taxes are gaining traction, making it easier for young companies to invest in innovation without cash flow constraints.
5. State-Level Opportunities
In 2025, 37 states will offer their own R&D credits. This represents another area of expertise that can help differentiate your firm locally in addition to being an expert resource for federal R&D credits. These changes highlight the importance of staying informed to help your clients take advantage of and stay in compliance with updated regulations.
5 Tips for Maximizing R&D Credits
1. Focus on documentation.
Advise clients to maintain thorough records of qualifying activities, including project timelines, employee time allocation, and the technical challenges they’re attempting to overcome.
2. Consider a multi-year strategy.
Help clients plan their R&D activities with tax credits in mind, potentially phasing certain investments to maximize benefits across tax years.
3. Don’t overlook state credits.
Many states offer their own R&D incentives that can be claimed in addition to federal credits, potentially multiplying the benefit.
4. Review past tax years.
The IRS allows taxpayers to claim missed R&D credits for open tax years, typically the last three years plus the current year.
5. Connect with technical team members.
When assessing a client’s eligibility, speak directly with their technical personnel (engineers, developers, etc.) who can best describe the innovative aspects of their work.
Give Credit Where Credit Is Due
R&D tax credits represent an exciting opportunity to expand your advisory role and support clients with a much-needed service. By becoming the go-to R&D tax credit expert for your clients, you’ll not only strengthen your client-advisor relationships but also help secure the financial success of your business clients.
Take a big advisory step forward and help your clients claim the credits they deserve. After all, it’s about giving credit where credit is due!
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