When it comes to tracking engineers’ time to substantiate the US R&D tax credit, your safest bet is to use a time tracking app on a daily basis. We love Harvest for this purpose. You can always use paper timesheets, excel sheets, or email records. Time tracking because increasingly important for later stage startups and those startups that are generating revenue or have already brought a product/service to market. This is because the line between improving a current product/service and developing new technologies becomes increasingly blurred. Remember, you can only claim the R&D credit if you’re developing something new.
How much will my startup really save by implementing the startup R&D tax credit payroll offset?
~10% of eligible R&D costs, up to $250,000 per year, for 5 years.
Caveat: this article is intended as general guidance for startups and it doesn’t substitute the need to work with a professional. It’s also a high level overview and is in no way complete. Your company is unique; talk to your CPA.