# R&D tax credit

> The research credit, what qualifies, the payroll tax election, Section 174 and Form 6765.

Source: https://lopifi.com/learn/rd-credit
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**Does my startup qualify for the R&D tax credit, and how do we claim it?** The research credit, what qualifies, the payroll tax election, Section 174 and Form 6765.

1. [What the R&D tax credit is, and who can use it](https://lopifi.com/md/learn/what-is-the-rd-tax-credit) — 8 min. What is the R&D tax credit, and can a startup actually use it? A federal credit for qualified research, usually wages: what it is, the three places it can go, and why a tool reseller doesn't get one.
2. [The four-part test: what counts as qualified research](https://lopifi.com/md/learn/four-part-test-qualified-research) — 10 min. Does my startup's work qualify for the R&D tax credit? What is the four-part test? Four tests, applied to each business component separately, worked on one hypothetical piece of software.
3. [Qualified research expenses: wages, supplies and contractors](https://lopifi.com/md/learn/what-counts-as-qualified-research-expenses) — 12 min. What counts as qualified research expenses for the R&D credit? Wages for qualified services, supplies, rented computers and 65% of contract research, worked line by line for one hypothetical year.
4. [Computing the credit: the ASC and the regular method](https://lopifi.com/md/learn/how-to-calculate-the-rd-credit) — 10 min. How do you calculate the R&D tax credit? ASC versus the regular credit The alternative simplified credit line by line, the 6% rule for a company's first years, and when the regular credit is the better method.
5. [Taking the credit against payroll tax](https://lopifi.com/md/learn/rd-credit-against-payroll-tax) — 12 min. How do I use the R&D tax credit against payroll taxes? Who qualifies, how the election is made on Form 6765, and how Form 8974 applies the credit quarter by quarter, worked for one hypothetical year.
6. [Form 6765, section by section](https://lopifi.com/md/learn/how-to-fill-out-form-6765) — 8 min. How do I fill out Form 6765, and when is Section G required? Form 6765 section by section, the order to fill it in, and the hypothetical year's entries line by line.
7. [Section 174A and foreign research](https://lopifi.com/md/learn/section-174a-and-the-rd-credit) — 11 min. How do Section 174 and 174A work with the R&D tax credit? When research costs are deducted, US and abroad, before and after the 2025 law, worked for one hypothetical year.
8. [Records, amended claims and state credits](https://lopifi.com/md/learn/rd-credit-documentation-and-refund-claims) — 9 min. What documentation do I need for the R&D tax credit, and can I claim a past year? The records a credit stands on, what an amended-return claim must contain, which elections it can't make, and where state credits come in.
9. [The R&D credit on the books](https://lopifi.com/md/learn/accounting-for-the-rd-tax-credit) — 10 min. How do you account for the R&D tax credit and the payroll tax offset? Research is expensed on the books; the credit is an income tax item against income tax and a disclosed policy choice against payroll tax, with the entries.

## Terms this track teaches

- [Research credit](https://lopifi.com/md/glossary/research-credit): A federal general business credit for qualified research expenses — computed on Form 6765 by the regular method or the alternative simplified credit, used against income tax, carried back one year and forward twenty when unused, or, for a qualified small business, elected against payroll tax
- [Qualified research](https://lopifi.com/md/glossary/qualified-research): Research whose costs are §174A domestic research expenditures, undertaken to discover information that is technological in nature, intended to be useful in developing a new or improved business component, where substantially all (80% or more) of the activities form a process of experimentation for a functional purpose — applied to each business component separately, and excluding research after commercial production, adaptation, duplication, surveys, most internal-use software, foreign research, social sciences and funded research
- [Business component](https://lopifi.com/md/glossary/business-component): The unit qualified research is tested and reported in: a product, process, computer software, technique, formula or invention held for sale, lease or license or used in the taxpayer's own business — listed one by one in Form 6765, Section G
- [Net operating loss](https://lopifi.com/md/glossary/net-operating-loss): The excess of tax deductions over gross income for a year. Federal NOLs arising after 2017 carry forward indefinitely, cannot be carried back (farming aside), and may offset only 80% of taxable income computed before the NOL deduction
- [Payroll tax offset](https://lopifi.com/md/glossary/payroll-tax-offset): An election by a qualified small business — gross receipts under $5 million and none before the last five years — to apply up to $500,000 a year of its research credit against the employer share of Social Security and then Medicare tax. Elected on Form 6765 with a timely original return, claimed on Form 8974 from the next quarter
- [Process of experimentation](https://lopifi.com/md/glossary/process-of-experimentation): Evaluating one or more alternatives to achieve a result whose capability, method or appropriate design is uncertain at the start, by modeling, simulation or systematic trial and error grounded in the physical or biological sciences, engineering or computer science
- [Internal-use software](https://lopifi.com/md/glossary/internal-use-software): Software developed primarily for the taxpayer's own general and administrative functions — financial management, human resources, support services. Its development qualifies for the research credit only if it also meets the high-threshold-of-innovation test: innovative, significant economic risk, and not commercially available
- [Qualified research expenses](https://lopifi.com/md/glossary/qualified-research-expenses): What the credit is computed on: wages for qualified services — doing, directly supervising or directly supporting qualified research (all of a person's wages once that is 80% or more of them) — plus supplies used in the research, rented off-site computers, and 65% of contract research paid to others
- [Contract research expenses](https://lopifi.com/md/glossary/contract-research-expenses): 65% of amounts paid to a non-employee for qualified research performed on the taxpayer's behalf under an agreement made before the work, where the taxpayer bears the cost even if the research fails; 75% for a qualified research consortium
- [Alternative simplified credit](https://lopifi.com/md/glossary/alternative-simplified-credit): The research credit computed as 14% of QREs above 50% of the average QREs of the three prior years, or 6% of current QREs if any one of those years had none; elected on a timely filed original return (or an amended one only if no credit was claimed for that year) and binding for later years unless revoked
- [Regular research credit](https://lopifi.com/md/glossary/regular-research-credit): The research credit computed as 20% of QREs above a base amount — a fixed-base percentage (3% for a start-up's first five years with QREs, never more than 16%) times average gross receipts of the four prior years, and never less than 50% of current QREs
- [Form 6765](https://lopifi.com/md/glossary/form-6765): The IRS form that figures the research credit, makes the §280C reduced credit election (Item A), the ASC election (Section B) and the qualified small business payroll election (Section D), and reports QREs (Section F) and business components (Section G, required for tax years beginning after 2025 with exceptions)
- [Form 8974](https://lopifi.com/md/glossary/form-8974): The form attached to each quarterly Form 941 to apply an elected research payroll credit — first against the employer's Social Security tax, up to $250,000 a quarter, then the employer's Medicare tax — carrying what the quarter cannot absorb to the next
- [Payroll liabilities](https://lopifi.com/md/glossary/payroll-liabilities): What an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxes
- [Refundable credit](https://lopifi.com/md/glossary/refundable-credit): A tax credit whose excess over the tax due is paid out in cash. Because it does not depend on taxable income, it is generally accounted for outside ASC 740 — as a reduction of the related cost or as other income
- [Reduced credit election](https://lopifi.com/md/glossary/reduced-credit-election): An election on the original timely filed return to take the research credit reduced by the 21% corporate rate (79% of it) instead of cutting the §174A research deduction by the full credit; irrevocable for the year
- [Section 174A](https://lopifi.com/md/glossary/section-174a): The OBBBA rule restoring immediate deduction of domestic research or experimental expenditures for tax years beginning after 2024, with an election to amortize over 60 months or more instead. Foreign research stays capitalized over 15 years under §174; small businesses could apply it back to 2022–2024
- [Amortization](https://lopifi.com/md/glossary/amortization): Spreading the cost of a finite-lived intangible, a prepaid or a debt discount over the periods it serves
- [Capitalization](https://lopifi.com/md/glossary/capitalization): Recording a cost as an asset rather than an expense because it brings a future benefit — then allocated to expense over that benefit
- [IRC conformity](https://lopifi.com/md/glossary/irc-conformity): How a state's income tax adopts the federal Internal Revenue Code — rolling (as currently amended), fixed-date (as of a stated date, updated by legislation) or selective. A fixed-date state may not follow §174A, bonus depreciation or other recent federal changes
- [Evidence](https://lopifi.com/md/glossary/evidence): Documentation supporting a recorded amount
- [Expense](https://lopifi.com/md/glossary/expense): Outflows or other using up of assets, or incurrences of liabilities, from delivering or producing goods, rendering services or carrying out other activities — recognized when incurred, not when paid
- [Income tax expense](https://lopifi.com/md/glossary/income-tax-expense): The P&L charge for income taxes — current tax payable for the period plus the change in deferred tax assets and liabilities
- [Deferred tax asset](https://lopifi.com/md/glossary/deferred-tax-asset): Future tax savings from deductible temporary differences and carryforwards, measured at enacted rates
- [Valuation allowance](https://lopifi.com/md/glossary/valuation-allowance): The reduction of a deferred tax asset to the amount more likely than not (over 50%) to be realized

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