Startup Founders: Stop Overpaying Taxes! R&D Credits Could Save You Big
If you're running a startup, chances are your to-do list prioritizes things like product development, fundraising, hiring, customer acquisition, and so on. But here's an aspect most founders overlook: their taxes and whether they are paying more taxes than they should.
One incentive that could substantially reduce taxes, but which most founders tend to either ignore or are unaware of, is the R&D tax credits. While it's one of the most powerful incentives under U.S. federal tax law, thousands of eligible companies miss out every year. And the amount isn't small. You could be losing out on tens or even hundreds of thousands of dollars that could have been reinvested into the growth of your business.
So, let's break down how R&D tax credits work, the One Big Beautiful Bill Act (OBBBA) impact, and how you can claim them.
What Exactly Is the R&D Tax Credit & What Changed in 2025?
The R&D Tax Credit is a federal incentive that rewards companies for investing in innovation. It's not just for tech giants or pharma labs, it's for any business that designs, develops, or improves products, processes, or software. That means if your startup is coding a new app, testing prototypes, experimenting with new formulas, or improving your internal systems, you could qualify.
Before this year, startups had to amortize their R&D expenses over five years as per the provisions of the Tax Cuts and Jobs Act (TCJA) 2017. That meant you couldn't deduct the full cost of innovation upfront, which essentially worked to tighten cash flow and increase how much you had to pay as annual taxes.
But as of July 4, 2025, the One Big Beautiful Bill Act (OBBBA) has assured huge changes:
- Immediately Deduct Your Domestic R&D: You can now deduct 100% of your U.S.-based R&D expenses in the year they're incurred.
- Retroactively Amend Past Returns: If your average gross receipts were under $31M from 2022-2024, you can amend past returns and reclaim deductions you previously had to stretch out.
- Foreign R&D Still Amortized: R&D done outside the U.S. will still have to be amortized over 15 years.
- General Relief For All Businesses: If you have any R&D balance that remains unamortized between 2022 and 2024, you can either choose to deduct it all at once in 2025 or spread it across your returns for 2025 and 2026.
These changes have been made to help businesses recover their costs quickly and reinvest the same in innovation for the future.
What Counts as R&D?
If you're wondering if you need to have lab facilities to qualify, no, you don't. The IRS has provided a broad definition for Qualified Research Activities (QRAs), and it includes:
- Developing new products or improving existing ones
- Building or refining software
- Experimenting with new processes or technologies
- Even contract research and university partnerships may count
Expenses like employee wages, supplies used in development, and certain contractor costs can all qualify for R&D tax credits.
How Much Can You Save?
Let's say you spent $500,000 on R&D this year. Under OBBBA, you could deduct the full $500K from your taxable income, saving approximately $105K in taxes (assuming a 21% corporate rate). Plus, you can also claim up to $50K in R&D tax credits. This gives you $155,000 in tax savings upfront, not over five years.
And if you're a startup with under $5M in gross receipts and fewer than five years of revenue? You can apply up to $500K of R&D credits annually against payroll taxes, even if you're not profitable yet.
What You Need To Do Now?
This is what you need to do to claim the R&D tax credits:
- Review your past returns and find out if you qualify for retroactive relief. Talk to your tax consultant about amending 2022-2024 filings.
- Reassess your current activities. You might be doing R&D without realizing it. Ensure you document everything, as the IRS is strict about this.
- Claim your deduction. You don't need any special elections or paperwork to deduct domestic R&D in 2025.
- Work with a tax advisor to estimate how much you could get back through refunds.
While innovation is expensive, the OBBBA has made it slightly less taxing. Whether you're busy developing the next unicorn or bootstrapping your startup, these R&D credits could help you fuel your cash flow needs.
So, ensure you take advantage of all the R&D tax credits at your disposal and stop overpaying taxes.
FinloTax: Your Shortcut to Smarter R&D Deductions
If you feel overwhelmed by tax complexity, don't. The experts at FinloTax have got your back. Make the most of your R&D tax credits and don't allow a cash crunch to stall innovation. At FinloTax, we specialize in helping startups like yours unlock every dollar of R&D credit you're entitled to. We provide fast, accurate, and stress-free solutions that work. Whether you're filing retroactive claims under OBBBA or optimizing this year's deductions, our expert team and smart tools make the process seamless.
Get in touch with us at 4088229406 to turn your R&D into funds for your business.