R&D Tax Credits and AMT
Since corporate AMT was repealed for most businesses, the R&D credit is usable against regular tax rather than trapped behind it - which turned a paper credit into cash value for thousands of smaller companies. Eligibility still turns on what counts as qualified research.
The AMT change
Historically, corporations subject to the alternative minimum tax could generate research credits they could not use - the credit reduced AMT, which many firms did not owe. With corporate AMT repealed except for the largest corporations, credits apply against regular tax, making them real money for ordinary profitable businesses.
What counts as research
The four-part test is narrower than the word suggests: elimination of uncertainty, process of experimentation, technological in nature, qualified purpose. Routine engineering that applies known methods fails. Developing your own internal tooling can qualify; customizing purchased software usually does not.
| Likely qualifies | Usually does not |
|---|---|
| New product development with technical unknowns | Routine maintenance and upgrades |
| Process improvements requiring experimentation | Market research and sales collateral |
| Building proprietary internal systems | Configuring third-party software |
The recordkeeping cost
A credible claim allocates wages, supplies and contract research to projects. That allocation lives in payroll and time data - see time and labor insights. Studies built retrospectively from memory are the pattern examiners discount first. Screen eligibility with your preparer alongside other employer credits.
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Frequently asked
Can startups use the credit against payroll tax?
Yes, qualified small businesses can elect to apply a portion against employer payroll taxes for up to five years, which reaches companies with no income tax bill yet.
Is software development automatically research?
No. Internal-use software faces extra tests, and customization of vendor products typically fails qualification.
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