R&D Tax Credit & Startup Tax Compliance

What Qualifies for the R&D Credit

Qualifying research generally means work aimed at developing or improving a product or process, involving technical uncertainty, and following a process of experimentation — most product engineering at an early-stage startup fits this description more often than founders expect. Qualifying costs include wages for employees doing the technical work, certain contractor costs, and supplies used in development.

The credit doesn't require success — failed experiments and abandoned features can still count, since the test is about the nature of the work, not the outcome.

Tracking Qualifying Wages All Year

The biggest practical obstacle to claiming this credit isn't eligibility — it's recordkeeping. Reconstructing which engineers spent what percentage of their time on qualifying work, a year after the fact, from memory, produces a weak claim that invites IRS scrutiny. We track time allocation and qualifying wages as part of ongoing bookkeeping, so the documentation exists contemporaneously instead of being assembled retroactively under deadline pressure.

Payroll Tax Offset for Pre-Revenue Companies

A startup with less than $5 million in gross receipts and no gross receipts more than five years ago can elect to apply the R&D credit against payroll taxes rather than income tax — which matters enormously for a company not yet profitable enough to owe income tax. This is often the single largest source of non-dilutive cash a pre-revenue startup can access, and it's frequently left unclaimed simply because nobody tracked the qualifying activity.

Delaware Franchise Tax

Nearly every venture-backed startup is a Delaware C-corp, and nearly every founder is caught off guard by their first franchise tax bill, because Delaware's default calculation method (based on authorized shares) can produce a number wildly disconnected from the company's actual size. We track which calculation method applies and flag the amount well before the March 1 deadline, so it's a budgeted expense, not a surprise.

Multi-State Sales Tax Nexus for SaaS

Whether a SaaS product is subject to sales tax varies significantly by state, and nexus (the threshold that creates a filing obligation) can be triggered by revenue, transaction count, or even having remote employees in a state — regardless of where your company is incorporated. We monitor where your revenue is coming from and flag when you're approaching a nexus threshold in a new state, so registration happens proactively instead of after a state notice arrives.

What Your CPA Gets From Us

At tax time, your CPA gets a closing financial package plus the R&D qualifying-wage tracking we've maintained all year, so the credit calculation and the return itself move faster and with fewer back-and-forth requests. If you don't have a CPA who specializes in startups, we can point you to one.

State R&D Credits

A number of states offer their own R&D tax credits alongside the federal one, with their own qualifying rules and forms — California and several others among them. If you have material operations in a state with its own credit, we track the additional documentation it requires so you're not leaving a second credit on the table after already doing the work to qualify for the federal one.

Audit Support

R&D credit claims occasionally draw IRS scrutiny, particularly for larger claims relative to company size. Because we track qualifying wages and the nature of the work contemporaneously rather than reconstructing it after the fact, the documentation needed to support a claim under audit already exists — it doesn't need to be built from memory under a deadline.