R&D Tax Credit
for Startups

Yes, possibly. Many early-stage startups can use the R&D Tax Credit before they owe income tax by applying it against eligible employer payroll taxes. Qualified small businesses may be able to use up to $500,000 per year of federal R&D credits against payroll taxes, subject to IRS rules.

It depends on your qualified R&D expenses, your tax position, and whether you qualify for the payroll tax offset. Many startups see a net benefit equal to roughly 6–10% of qualifying R&D spend. The annual payroll tax offset election is capped at $500,000, but the actual usable amount depends on your credit and payroll tax liability.

Common qualifying activities include building or improving software, developing new products, improving technical performance, testing new architectures, designing algorithms, building prototypes, and resolving technical uncertainty through experimentation.

Often, yes. Software development may qualify when the team is creating or improving functionality, performance, reliability, scalability, security, or quality and is working through technical uncertainty.

It can. AI and machine learning work may qualify when it involves experimentation, model development, algorithm design, infrastructure optimization, training workflows, or other technical efforts to improve performance, reliability, accuracy, or scalability.

Potential qualifying expenses often include U.S.-based employee wages, certain contractor costs, supplies used in R&D, and some cloud computing or computer rental costs tied directly to qualified research.

They can, but the rules are more limited than for employee wages. In many cases, only a portion of eligible contractor costs can be included, and the contract terms matter.

Some cloud computing costs may qualify when they are directly tied to eligible R&D work, such as software development, model training, testing, simulations, or experimentation. General hosting, production infrastructure, and ordinary business operations usually need to be separated out.

Generally, no. The federal R&D Tax Credit applies to qualified research conducted in the United States, so it is important to separate U.S.-based work from work performed by offshore employees or contractors.

Yes, potentially. The credit is based on qualified research activity, not whether the project succeeds. A failed experiment, abandoned feature, or unsuccessful technical approach may still qualify if the work meets the IRS requirements.

Routine maintenance, basic bug fixing, ordinary quality assurance, cosmetic updates, customer support, non-technical research, market research, and work performed after a product is ready for commercial use generally do not qualify.

You must be able to support both the technical work and the expenses claimed. Useful documentation may include payroll records, contractor invoices, cloud invoices, project descriptions, engineering notes, sprint records, product specs, experiment results, and records showing where the work was performed.

First, the R&D Tax Credit is calculated and elected on your company’s income tax return. Then the credit is applied against eligible payroll taxes through quarterly payroll tax filings. Any credit that cannot be used in one quarter may generally carry forward to later quarters.

Possibly. Startups may be able to amend prior income tax returns to claim R&D credits, depending on the facts and timing. However, the payroll tax election generally must be made on a timely filed original return, so prior-year payroll tax offsets are more limited.

Burkland helps startups identify qualifying R&D activities and expenses, calculate the potential credit, prepare the required tax forms, organize supporting documentation, and coordinate the credit with your company’s tax and payroll filings.

Burkland works specifically with startups and understands how R&D credits connect to the broader finance stack, including accounting, tax, payroll, runway planning, and investor reporting. That means the credit analysis can be tied back to your books, payroll data, tax filings, and startup-specific operating model.

Yes. Burkland can help coordinate the payroll tax credit process with your payroll provider so the credit is applied correctly after the tax return and payroll tax forms are filed.

For most startups, Burkland’s R&D Tax Credit service typically costs $4,000–$6,000. The final price depends on factors like how complex your claim is, how many entities or tax years are involved, your payroll setup, the quality of your documentation, and whether state credits are included. If your situation is more complex, the cost may be higher, but we’ll scope the work upfront so there are no surprises.