The Research & Development (R&D) Tax Credit is a lucrative, government-backed incentive designed to reward businesses that innovate, improve processes, or develop new products. You don’t need a lab to qualify—industries like construction, manufacturing, software, and even roofing can claim substantial tax savings for improving materials, techniques, or efficiency.
If your business is solving problems, optimizing processes, or enhancing products, you could be leaving thousands of dollars in tax credits on the table each year. Find out if you qualify today!
Research & Development Tax Credit
What Qualifies as Research and Development?
To qualify for the Research & Development (R&D) Tax Credit, an activity must meet the IRS’s four-part test. This test is designed to determine whether the work your business performs truly constitutes R&D under federal guidelines.
Below is a breakdown of each requirement:
1. Permitted Purpose
The activity must aim to develop or improve the functionality, quality, reliability, or performance of a business component.
Business components include products, processes, software, techniques, formulas, or inventions.
2. Technological in Nature
The development must be based on principles of the hard sciences, including:
Engineering
Physics
Chemistry
Biology or Life Sciences
Computer Science
The activity doesn’t need to be cutting-edge but must involve scientific or technical methods.
3. Elimination of Uncertainty
At the beginning of the project, there must have been technological uncertainty about:
Whether the desired result could be achieved
How to achieve it (method)
Or what the final design would be
If the outcome was known in advance or could be determined without testing, the activity may not qualify.
4. Process of Experimentation
The company must use a systematic approach to resolve the uncertainty. This could involve:
Evaluating multiple design alternatives
Modeling or simulations
Prototyping and testing
trial and error
Top 10 industries that qualify for the Research and Development tax credit
1. Engineering, Architecture, & Construction
Why it qualifies: Creating or improving designs, processes, or materials to solve technical challenges, boost efficiency, or meet performance goals.
Examples of Eligible Companies & Projects:
Roofing Company: Developing and installing custom-engineered roofing systems that improve durability, energy efficiency, and weather resistance.
General Contractor (GC):
Implementing and testing new construction methods to reduce build time while maintaining structural integrity.
Integrating prefabricated components in novel ways to optimize assembly and minimize waste.
Collaborating with design teams to prototype and refine energy-efficient building envelopes.
Developing project-specific solutions to address site-specific engineering challenges (e.g., soil stabilization, drainage, or foundation systems).
Civil Engineering Firm: Designing earthquake-resistant buildings using new materials and modeling techniques.
Mechanical Engineering Company: Enhancing HVAC systems for improved energy efficiency and environmental impact.
Architectural Firm: Creating sustainable, net-zero-energy building designs incorporating innovative materials and passive systems.
2. Manufacturing
Why it qualifies: Continuous process improvements, automation, material advancements, and product prototyping.
Examples of companies:
A metal fabrication company improving welding automation.
A consumer electronics manufacturer developing a more energy-efficient battery.
A plastics company innovating biodegradable packaging materials.
A furniture company designing modular, space-saving office solutions.
A paint manufacturer developing non-toxic, self-cleaning coatings.
3. Software & Technology
Why it qualifies: Constant innovation in software development, cybersecurity, artificial intelligence (AI), and cloud computing.
Examples of companies:
A SaaS (Software-as-a-Service) company developing an AI-driven data analytics platform.
A cybersecurity firm creating advanced threat detection algorithms.
A game development studio designing a new physics engine for a mobile gaming app.
A database management company optimizing real-time data retrieval systems.
A cloud computing company developing scalable multi-tenant architectures.
4. Pharmaceuticals & Biotechnology
Why it qualifies: Drug discovery, clinical trials, genetic engineering, and medical research.
Examples of companies:
A biotech startup researching gene therapy treatments.
A pharmaceutical firm developing a new antibiotic.
A medical research lab testing alternative cancer therapies.
A stem cell therapy firm testing regenerative medicine treatments.
A pharmaceutical packaging company innovating temperature-sensitive vials.
5. Automotive & Transportation
Why it qualifies: Advancements in electric vehicles (EVs), autonomous driving, and fuel efficiency.
Examples of companies:
An EV startup creating solid-state battery technology.
A self-driving car company improving AI-based navigation.
A truck manufacturer developing aerodynamic enhancements for fuel efficiency.
A battery recycling firm optimizing EV battery life cycles.
6. Aerospace & Defense
Why it qualifies: Research in aerodynamics, propulsion, materials, and avionics.
Examples of companies:An aerospace manufacturer developing lightweight composite materials for aircraft.
A military defense contractor improving radar and communication systems.
A space exploration company designing reusable rocket components.
7. Agriculture & Agribusiness
Why it qualifies: Precision farming, genetically modified crops, and sustainable techniques.
Examples of companies:
A drone company enhancing AI-driven crop monitoring.
A vertical farming startup optimizing hydroponic growing methods.
A seed company developing drought-resistant crops.
A livestock tracking company developing smart collars for herd management.
A genetically modified seed firm engineering climate-resistant crops.
8. Medical Devices
Why it qualifies: Innovation in surgical tools, imaging technology, and prosthetics.
Examples of companies:
A prosthetics company designing AI-controlled bionic limbs.
A medical imaging firm improving MRI resolution.
A wearable health tech company developing a real-time glucose monitor.
A robotic-assisted surgery company developing AI-driven precision tools.
A 3D printing medical device company manufacturing patient-specific implants.
A sleep apnea device manufacturer designing quieter and more effective CPAP machines.
9. Energy & Renewable Resources
Why it qualifies: Research in solar, wind, battery storage, and carbon capture.
Examples of companies:
A solar panel manufacturer improving energy efficiency.
A wind turbine company designing more aerodynamic blades.
A battery startup developing long-duration energy storage solutions.
10. Food & Beverage
Why it qualifies: New formulations, sustainable packaging, and food safety improvements.
Examples of companies:
A plant-based food company formulating a meat alternative.
A beverage company developing a sugar-free, natural energy drink.
A food packaging firm designing compostable wrappers.