Proposed 2025 Tax Bill could lead to Section 174 Changes

R&D Tax Credits | May 28, 2025 | 1 min read

Big Changes Could Be Coming to Section 174: What It Means for R&D Tax Credit Claims 

As the proposed 2025 tax bill is currently making its way through the legislative process, there are a few aspects that would directly impact innovative businesses investing in research and development. One of the most talked-about provisions is a potential suspension of the widely discussed Section 174 capitalization rule.

If passed, the bill would temporarily allow full deductibility of domestic R&D expenses for tax years 2025 through 2029. This is a major shift from the current requirement that businesses capitalize and amortize these expenses over five years; a change that has been a major talking point for many since it took effect in 2022.

While this is good news for the future, the real opportunity lies in what businesses can do right now. Thanks to this proposed bill, there’s a window to retroactively maximize R&D tax credits and deductions.

Why Act Now?

To fully benefit, companies will need to:

  • Complete R&D studies for 2022, 2023, and 2024

  • Amend 2022 and 2023 tax returns (and often the business owner’s return as well)

  • Possibly amend 2024 tax returns too (if the R&D study isn’t completed before filing)

Keep in mind: the statute of limitations for 2022 returns starts expiring in March 2026 for calendar-year filers. That may sound far off, but the process, especially for three years’ worth of amended filings, takes time.

For the average R&D tax credit customer, the potential three-year benefit is about $400,000. That’s a significant amount of cash flow that could be reinvested in more innovation, hiring, or scaling operations.

Bottom Line

This tax bill offers hope that the previous R&D tax treatment could return soon. But even before it passes, businesses have a chance to recapture value lost under the current Section 174 rules. Acting now, before the window closes, could mean hundreds of thousands in tax savings.

The Clarus team of tax experts is here to help! We offer free consultations to walk through your specific situation and identify how your business can maximize the R&D tax credit under both current law and proposed changes.

If your business is investing in innovation, don’t wait. The sooner you begin the process, the more you stand to gain.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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Advancing Health and Earning Tax Savings: The R&D Tax Credit for Medical Device and Pharmaceutical Companies

R&D Tax Credits | May 9, 2025 | 1 min read

For companies in the medical device and pharmaceutical industries, innovation is at the heart of everything you do. What many don’t realize is that the technical challenges you overcome in developing new therapies, products, or testing methods may qualify for the federal R&D (Research & Development) tax credit; a powerful tool that can significantly reduce your tax burden.

 

Why It Matters

The R&D tax credit is designed to reward companies that push the boundaries of science and technology. It can offset income tax, and for qualified small businesses, even payroll tax. That means more capital to reinvest in R&D, clinical trials, regulatory strategy, or expanding your team.

 

Qualifying Activities in MedTech, Medical Devices, and Pharma

As long as your work involves technical uncertainty and a process of experimentation, there’s a strong chance it qualifies. Examples include:

  • Developing new medical devices, from concept through prototyping and testing.
  • Improving existing products, such as enhancing device functionality or materials.
  • Conducting pre-clinical or clinical research to support FDA submissions.
  • Designing and validating manufacturing processes under regulatory constraints.
  • Developing drug formulations, delivery mechanisms, or dosage improvements.
  • Engineering software used in diagnostics, monitoring, or data collection.

 

Real-World Example

A medical device company developed a wearable sensor to track patient vitals in real time. The R&D process involved hardware design, firmware development, software integration, and multiple rounds of testing to meet regulatory requirements. These activities qualified for the R&D tax credit, and the company recouped a significant portion of its development costs.

 

Don’t Overlook This Opportunity

Whether you’re working on the next breakthrough therapy or refining a Class II device, your R&D efforts may qualify. Even if you’re still in early development or clinical stages, it’s worth exploring.

Let’s chat about how your innovation could lead to real tax savings. 

 

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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Turn Discovery Into Dollars: The R&D Tax Credit for Biotech & Life Science Companies

R&D Tax Credits | May 8, 2025 | 1 min read

Biotech and science-based companies live at the cutting edge of innovation. Whether you’re engineering new biological systems, exploring molecular pathways, or developing diagnostic tools, chances are your team is performing work that qualifies for the federal R&D (Research & Development) tax credit.

But here’s the catch: many companies don’t realize how much of their scientific work could translate into real tax savings.

 

Why It Matters

The R&D tax credit can significantly reduce your income tax liability, or even offset payroll taxes if you’re a qualified small business. In an industry where funding is precious and R&D cycles are long, every dollar back helps extend your runway and support your mission.

 

Qualifying R&D Activities in Biotech and Life Sciences

If your work involves solving technical challenges through experimentation, there’s a strong chance it qualifies. Here are some common examples:

  • Developing new biologics, therapeutics, or vaccines.
  • Conducting lab-based research, assays, or molecular analysis.
  • Optimizing cell lines or fermentation processes.
  • Developing diagnostic or screening technologies.
  • Creating or improving drug delivery systems.
  • Scaling up production processes for biologics or reagents.
  • Designing proprietary lab automation or software tools.

 

Real-World Example

A biotech startup focused on cancer diagnostics developed a novel assay using RNA sequencing and machine learning. Their team spent months optimizing protocols, validating results, and refining the computational model. All of that qualified for the R&D tax credit, resulting in a substantial return that helped fund the next phase of clinical validation.

 

You’re Probably Already Doing R&D

If your scientists are in the lab, testing hypotheses, building prototypes, or navigating technical uncertainty, those efforts likely qualify. Even early-stage companies with no revenue can benefit through payroll tax offsets.

Let’s talk about how your scientific breakthroughs could also lead to financial returns. You focus on the research, and we’ll help you claim the credit you deserve.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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Fueling Innovation: The R&D Tax Credit for Software Developers

R&D Tax Credits | April 28, 2025 | 1 min read

If you’re in the business of building software, there’s a good chance you’re also eligible for the federal R&D (Research & Development) tax credit, whether you’re writing code, solving technical challenges, or building custom solutions. Many software developers don’t realize that the work they do every day can qualify for this powerful tax incentive.

 

Why It Matters

The R&D tax credit allows companies to reduce their income tax liability, and in some cases, offset payroll taxes. For software businesses, especially startups and fast-growing teams, that means more cash to reinvest in talent, infrastructure, or product development.

 

What Counts as R&D in Software?

The IRS recognizes a wide range of software-related activities as R&D, as long as you’re tackling technical challenges and going through a process of experimentation. Common qualifying activities include:

  • Developing new software products or platforms.
  • Improving performance, scalability, or security of existing systems.
  • Building custom integrations or APIs that require original coding and problem-solving.
  • Refactoring code to enhance functionality or efficiency.
  • Developing internal tools or applications for business operations.
  • Creating or modifying algorithms to solve technical problems.

Real-World Example

A SaaS company built a new feature that integrated with multiple third-party platforms via APIs. The development process involved original coding, data mapping, debugging, and performance optimization. All of this qualified as R&D, and the company used the credit to help fund their next development sprint.

 

Don’t Miss Out

If your team is writing code, solving technical problems, or testing new features, you’re likely doing qualifying R&D. And since the credit is available to companies of all sizes, including startups, it’s worth exploring.

Curious whether your development efforts qualify? Let’s connect and find out how much your business could be saving.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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Unlocking Savings: The R&D Tax Credit for Manufacturers

R&D Tax Credits | April 21, 2025 | 1 min read

The Research and Development (R&D) tax credit is a powerful incentive that was designed to reward innovation, but “innovation” doesn’t always mean white lab coats and high-tech labs. For manufacturers, it often looks like improving processes, developing new products, or solving production problems.

Many manufacturers are leaving money on the table simply because they don’t realize their day-to-day work may qualify for the federal R&D tax credit. 

 

Why It Matters

The R&D tax credit can offset income taxes or, for eligible small businesses, payroll taxes – freeing up capital for reinvestment in operations, hiring, or further innovation. In a competitive industry where efficiency and cost control are key, this credit can be of significant value for companies with ongoing manufacturing operations.

 

Common Qualifying Activities for Manufacturers

You might already be doing R&D without realizing it! Activities that often qualify include:

  • Developing or improving production processes to increase efficiency or reduce waste.
  • Designing and testing new or improved products, components, or tooling.
  • Creating prototypes or running pilot programs.
  • Automating manual processes with custom machinery or robotics.
  • Evaluating and testing materials for better performance or lower cost.
  • Developing custom software for internal use (such as inventory systems or process controls).

 

Real-World Example

A precision machine shop redesigned one of its core product lines to meet new client performance specs. This involved multiple iterations, prototype testing, and changes to machining processes. The time engineers and machinists spent designing, testing, and refining the product qualified for the R&D credit, and the shop was able to include some of their supplies costs in their credit claim as well.

 

Don’t Miss Out

If you’re a manufacturer engaged in problem-solving, process improvement, or product development, you may be eligible. The R&D tax credit isn’t just for big corporations, and small and mid-sized manufacturers can benefit significantly.

Want to explore how much your business could save? Let’s talk. 

 

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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Filing an Extension for the R&D Tax Credit

R&D Tax Credits | February 28, 2025 | 1 min read

As tax deadlines approach, many businesses find themselves rushing to file their returns. If you’ve only just discovered the federal Research and Development (R&D) tax credit, don’t panic: you may still have options to claim it by filing an extension or amending a prior return.

Understanding Your Options for the R&D Tax Credit

To take advantage of the federal R&D tax credit against your payroll tax liability, it’s ideal to claim it on your original income tax return. This is why extensions can be particularly useful for startups. However, if you’ve missed that opportunity, you might still be able to apply the credit toward your income tax liability by amending your return. Additionally, a ‘lookback’ review allows businesses to claim up to three years of previously unclaimed R&D tax credits. Even if your tax deadline has come and gone, there are still ways to benefit from this incentive.

When and How to File a Tax Extension

If you need extra time, your tax extension must be filed by your original deadline. Depending on your business structure, this is typically in mid-March or mid-April.

If you’ve already submitted your return but the deadline hasn’t passed yet, you may have the option to file a superseding return. This essentially replaces or “undoes” your initial filing, giving you a second chance to include the necessary documentation for the R&D tax credit.

If the deadline has passed, your next best option is filing an amended return, which may require additional paperwork to support your claim.

The Process of Filing an Extension

Filing for an extension is a standard practice that many businesses utilize. Speak with your CPA or tax advisor to determine if it’s the right move for you. If you decide to proceed, the process is straightforward:

  • Most businesses file IRS Form 7004 to request an extension for their income tax return.
  • For flow-through entities, individual shareholders or partners may also need to extend their personal returns.

Why the R&D Tax Credit Is Worth Pursuing

The R&D tax credit can be a valuable financial boost, so don’t let tax deadlines stop you from securing the credits your business deserves.Working with TriNet Clarus R+D can make the process easier, ensuring that you claim the maximum benefit available to your company.

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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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California State R&D Tax Credits

R&D Tax Credits | February 24, 2025 | 2 min read

California’s R&D Tax Credit offers substantial financial incentives to businesses that invest in research and development activities. Designed to encourage innovation and economic growth, the credit can significantly reduce your state tax liability. Here’s a comprehensive guide to understanding and claiming this benefit. 

What Is the California R&D Tax Credit? 

The California R&D Tax Credit allows businesses to offset a portion of their state income or franchise tax liability using a credit based on their California qualified research expenses (QREs). This credit is closely aligned with the federal R&D Tax Credit but includes several unique state-specific provisions.

Who Qualifies for the California R&D Tax Credit? 

Your business may qualify for the California R&D Tax Credit if it: 

  • Engages in R&D activities that meet the federal definition under Section 41 of the Internal Revenue Code. 
  • Incurs QREs within California. These expenses typically include employee wages, supplies, and contract research costs directly related to qualified research activities. 
  • Aims to develop or improve products, processes, software, or inventions. 

      Both large and small businesses across various industries, including technology, manufacturing, consumer products, and biotechnology, can take advantage of this credit. 

      How to Calculate the Credit 

      • When using the regular method of calculation, California’s R&D credit closely aligns with the federal credit, applying a fixed base percentage determined from historical gross receipts and R&D spend.   
      • However, one difference is that California’s definition of “gross receipts” is different than the federal definition. California defines gross receipts as the sale of real, tangible, or intangible property held for sale to customers and delivered to a purchaser within California. This limited definition means receipts related to license payments are generally excluded from the R&D tax credit calculation.  
      • The state R&D credit in California is generally equal to 15% of qualified expenses that exceed a base amount. Businesses claim this state credit on Form FTB 3523 with their business return.  

          In the event that the state credit exceeds tax liability or can otherwise not fully be utilized, unused credits can be carried forward indefinitely. 

          Applying for the California R&D Tax Credit 

          1. Determine Eligibility: Ensure your R&D activities and expenses meet both federal and California-specific requirements. 
          2. Calculate QREs: Compile detailed records of your qualified research expenses, such as payroll, supply costs, and contract research fees. 
          3. Claim the Credit on Tax Return: Use California’s Form 3523, “Research Credit,” to claim the R&D tax credit when filing your state tax return.  
          4. Carry Forward Unused Credits: If your business cannot use the full credit in the current tax year, California allows unused credits to be carried forward indefinitely. 

                Key Differences Between California and Federal R&D Credits 

                • No Alternative Simplified Credit (ASC): Unlike the federal credit, California does not offer an ASC calculation method, but does provide an alternative incremental method.  The election to use this method is a permanent election and requires approval from the California Franchise Tax Board to be revoked for future years. 
                • Higher Basic Research Credit Rate: California’s rate of 24% for university research is higher than the federal rate. 
                • No Refundable Credit: The California R&D Tax Credit is nonrefundable, meaning it can only offset state tax liability. 

                    Tips for Maximizing the Credit 

                    • Coordinate with Federal Credits: By aligning your California claim with your federal R&D Tax Credit, you can maximize savings across both levels. 
                    • Maintain Substantial Documentation: Keep detailed records of your R&D activities and expenses, including time-tracking systems, project descriptions, and financial data. 
                    • Work with Experts: Partnering with R&D tax credit professionals or CPAs who specialize in state credits can help ensure compliance and maximize your claim. 

                      The California R&D Tax Credit provides an excellent opportunity for businesses to reduce their tax burden while investing in innovation. By understanding the program’s requirements and taking the right steps to apply, you can unlock significant financial benefits. Don’t miss out on this opportunity to reinvest in your business and drive growth—start exploring how you can claim the California R&D Tax Credit today! 

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                      ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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                      IRS Publishes Revised Form 6765

                      R&D Tax Credits | February 24, 2025 | 1 min read

                      The 2024 IRS Form 6765 and accompanying instructions were published to the IRS website on February 19, 2025.  The new form provides for more detailed reporting when claiming the federal Research and Development Tax Credit.   

                      The additional requirements for the new Form 6765 include responses to some general questions about the business as well as the portion of qualifying payroll expense attributable to work performed by officers of the company. The new requirements also request an attachment listing details for all members of a controlled group, if applicable.  Controlled group details include entity names, FEINs, principal business activity codes, qualifying research expenses, and allocated portion of the group credit by member.    

                      While the new version of Form 6765 is generally applicable for businesses who are claiming the R&D income tax credit on their 2024 income tax returns, Section G (Business Component Information) remains optional until the 2025 tax year to allow businesses time to adjust to the new format. Beginning with the 2025 tax year, information in Section G will be required to be completed unless the business is a qualifying small business defined in IRC 41(h)(1) and (2), or total QREs determined at the control group level are less than $1.5 million and gross receipts are less than $50 million.   

                      The IRS has indicated that these new changes are part of an effort to maintain compliance and ensure the legitimacy of claims.  

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                      ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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                      How to Claim the Georgia State R&D Tax Credit

                      R&D Tax Credits | February 20, 2025 | 2 min read

                      Georgia offers a robust R&D Tax Credit designed to encourage innovation and support businesses investing in research and development activities. This credit can help offset both income tax and payroll withholding, making it particularly valuable for startups and established companies alike. Here’s what you need to know to claim this benefit. 

                      What is the Georgia R&D Tax Credit? 

                      The Georgia R&D Tax Credit provides a financial incentive for companies conducting qualifying research activities within the state. Businesses can use this credit to offset their Georgia corporate income tax liability. For businesses with little to no tax liability, unused credits may also be applied to offset Georgia payroll withholding taxes, providing an additional layer of flexibility. 

                      Who Qualifies for the Georgia R&D Tax Credit? 

                      To qualify for the Georgia R&D Tax Credit, your business must: 

                      • Engage in qualified research activities (QRAs) that meet the federal definition under Section 41 of the Internal Revenue Code. 
                      • Conduct these activities within Georgia. 
                      • Incur qualified research expenses (QREs), including employee wages, supplies used in research, and contract research expenses. 

                          This credit is available to companies across various industries, including manufacturing, technology, and life sciences. 

                          How to Calculate the Georgia R&D Tax Credit 

                          The Georgia R&D Tax Credit is calculated by a single calculation method, as follows: 

                          • Base Amount Calculation: The base amount is determined by multiplying a ratio of the prior 3 years of Georgia research expenses and taxable income by taxable net income.
                          • Credit Value: The credit is generally equal to 10% of QREs that exceed the base amount. 

                            Applying for the Credit 

                            1. Determine Eligibility: Ensure your R&D activities meet both federal and state requirements. 
                            2. Calculate QREs: Gather detailed records of your R&D expenses, including wages, supply costs, and third-party contractor fees. 
                            3. Complete Form IT-RD: File Georgia Form IT-RD, “Research and Development Tax Credit,” with your state income tax return.  
                            4. Apply Credits Against Payroll Taxes: For businesses unable to use the full credit against income tax, excess credits may be applied against Georgia payroll withholding tax liability. To do so, submit Form IT-WH, “Withholding Tax Credit Election.” 

                                  Key Features of the Georgia R&D Tax Credit 

                                  • Benefit for Startups: Startups with limited tax liability can benefit by applying the credit to offset future payroll withholding taxes. 
                                  • Alignment with Federal Standards: The state’s definition of qualified research activities and expenses closely mirrors federal standards, simplifying compliance. 
                                  • Carry Forward: Unused credits may be carried forward for up to 10 years. 

                                      Tips for Maximizing the Credit 

                                      • Leverage Both Federal and State Credits: Coordinate your Georgia claim with your federal R&D Tax Credit to maximize savings. 
                                      • Maintain Detailed Documentation: Accurate and comprehensive records are critical for supporting your claim. This includes timesheets, project notes, financial data, and contractor agreements. 
                                      • Consult R&D Tax Credit Experts: Working with tax professionals who specialize in R&D credits can help ensure compliance and optimize your claim. 

                                          The Georgia R&D Tax Credit is a powerful incentive for businesses investing in innovation. Whether you’re a growing startup or a well-established company, this credit can provide substantial financial relief while fostering technological advancement. Don’t leave these savings on the table—start exploring your eligibility and claiming the Georgia R&D Tax Credit today! 

                                           

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                                          ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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                                          How to Claim the Pennsylvania State R&D Tax Credit

                                          R&D Tax Credits | February 3, 2025 | 2 min read

                                          Research and Development (R&D) tax credits offer significant incentives for businesses investing in innovation. Along with the federal credit, many states offer the opportunity to claim an additional state credit for R&D work done in that state. Pennsylvania is one such state, and there are a couple of things that businesses should consider when looking to claim the state credit there: 

                                          What Is the Pennsylvania State R&D Tax Credit? 

                                          The Pennsylvania R&D Tax Credit incentivizes businesses to increase spending on R&D activities within the state. It allows companies to claim a percentage of their qualified research expenses (QREs) as a credit against their state tax liability. Credits are available to business entities conducting eligible research activities in Pennsylvania.  

                                          Who Qualifies for the Pennsylvania State R&D Tax Credit? 

                                          To qualify, your business must: 

                                          • Engage in R&D activities that meet the federal definition under Section 41 of the Internal Revenue Code. 
                                          • Incur QREs, which typically include wages for employees conducting research, supplies used in the research process, and contract research expenses.
                                          • Conduct the R&D activities within Pennsylvania. 

                                              Both established companies and startups can apply for the credit.  

                                              How to Calculate the Pennsylvania State R&D Tax Credit 

                                              • The calculation method for the state credit uses a base amount of either your prior years’ average Pennsylvania R&D expenditures, or 50% of the current year’s average Pennsylvania R&D expenditures, whichever is greater. Additionally, you must have at least 2 years of R&D expenditures.  
                                              • The state credit itself is tentatively calculated as 10% of the qualified expenses that exceed the base amount for a large business, and 20% of the excess for a small business with less than $5 million in assets at the start or end of the tax year. 

                                              Applying for the Credit 

                                              1. File the Application: Submit the R&D Tax Credit application to the Pennsylvania Department of Revenue through the myPennsylvania Tax Hub between August 1 and December 1 of the year following the tax year in which the QREs were incurred. 
                                              2. Provide Supporting Documentation: Include detailed records of your R&D expenses, such as payroll data, supply costs, and contractor invoices. 
                                              3. Approval Notification: The state notifies applicants of approved credits in May of the following year.  
                                              4. Sell or Assign Credits (if applicable): Pennsylvania allows businesses with unused R&D tax credits to sell or assign them to other taxpayers if the credit amount exceeds the business’s tax liability for that year. This feature can be particularly advantageous for startups with limited tax liability. Unused credits can also be carried forward for up to 15 years.  

                                                    Tips for Maximizing the Credit 

                                                    • Leverage Federal and State Credits: Pennsylvania’s R&D credit complements the federal R&D Tax Credit, allowing you to optimize savings at both levels.
                                                    • Keep Comprehensive Records: Maintain documentation of your R&D activities and expenses to support your claim, making it easier when it comes time to complete your study.
                                                    • Seek Professional Assistance: Partnering with R&D tax credit experts can help ensure accurate calculations and compliance with state requirements. 

                                                        Claim your credit today! 

                                                        The Pennsylvania R&D Tax Credit is a powerful tool for fostering innovation and offsetting the costs of research and development. By understanding the eligibility criteria and application process, your business can take full advantage of this opportunity to reduce state tax liability and reinvest in growth. Don’t leave money on the table—start exploring how your business can claim this valuable credit today! 

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                                                        ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.

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