Startup R&D Tax Credit Calculator

How much can your startup save in payroll taxes?
Estimate your R&D tax credit using our free calculator.

Estimate Your R&D Credits Now

Vanessa Kruze, CPA Kruze Consulting

Vanessa Kruze CPA,
Kruze Consulting

Calculate your startup’s R&D tax credit

Unprofitable startups can reduce their burn rate up to $250,000 per year with an R&D tax credit study. Take advantage of the startup incentives set in place by the US government and help your startup reduce your payroll tax burden!

First, let’s calculate your R&D expenses

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R&D Tax Credits Have Changed Dramatically

Traditionally, these tax credits were calculated and saved up against a Corporation's annual tax forms. For startups that aren't yet profitable, that meant that they would only benefit from these tax credits once they became profitable in future years.

The PATH (Protecting Americans from Tax Hikes) Act of 2015 has changed all of that. Regulators acknowledged that the old R&D tax credits weren't appetizing to founders if it only promised a potential future benefit that may never be realized. And so the R&D tax credit has been revised to give more instant gratification: R&D tax credits generated in 2017 can be used to offset payroll taxes come mid-2018, and R&D tax credits generated in 2018 can be used to reduce payroll taxes in 2019.

The Kruze Consulting R&D Tax Credit Calculator is designed to estimate your R&D tax credit using Federal Form 6765.

Let Kruze Consulting handle your startup's R&D Tax Credit analysis and preparation. We charge a fixed fee of 15% of the anticipated captured credit amount with a minimum fee of $2,000.

Caveat: The information on this page intended as general guidance 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; contact Kruze Consulting.

Startup R&D Tax Credits FAQs

Why should I have my startup file for the R&D tax credit payroll offset?

IT SAVES YOU DIRECT $$$ NOW!!! UP TO $250,000 PER YEAR FOR UP TO 5 YEARS!

How much does Kruze Consulting charge for R&D tax credit preparation?

For Startup R&D Tax Credit analysis and preparation, Kruze Consulting charges a fixed fee of 15% of the anticipated captured credit amount with a minimum fee of $2,000.

Am I eligible? Can any company apply for the R&D tax credit payroll offset? What defines research & development?

Unfortunately, not every company is eligible. You must be creating something new, and by new I mean pass the IRS’ 4 Part Test. Your R&D must be:

  • Specific: no mindless tinkering allowed. The project must be defined.
  • Eliminate uncertainty: must be contributing real scientific advancement, not just proving existing knowledge.
  • Experimental: either have a scientific method or trial and error process.
  • Technical: the work must be grounded in the hard sciences like biology or engineering.

Are there any R&D activities that don't qualify?

Yes. Here are a few:

  • Research after commercial production.
  • Adaptation of existing business components.
  • Duplication of existing business component.
  • Reverse Engineering.
  • Surveys & studies.
  • Computer software for internal use.
  • Foreign research.
  • Research in the Social Sciences, Arts, Humanities, etc. Funded research.

Is my startup eligible for the R&D tax credit payroll offset?

Your startup must have qualifying R&D expenses (see definition below). Your business must be new; only startups that have generated revenue for 5 years or less can claim the new tax credit. If you had receipts prior to 2012, then you're ineligible. Your company must have less than $5 million in revenue in 2018 and each subsequent year that you claim the payroll offset.

What qualifies as an R&D expense? What goes into the calculation?

What goes into the calculation of an R&D expense, for the tax credit calculation purposes? And the answer is there are four main categories. The first of which is wages. And this is where you're going to capture a lot of your value. But keep in mind you can only do this for people who are engaged in R&D type activities. So usually this is your engineers. Next up are your subcontractors. But again, only those are engaged in R&D and only the ones that are domestic. Next up we have supplies, this is your nuts bolts all of the hardware that kind of goes into whatever you're developing. You can absolutely include that in the R&D tax credit study. Last but not least, but we rarely see this computer leases and rentals.

How do I claim the R&D tax credit payroll offset?

Follow these steps:

  • 1. File the R&D tax credit on Form 6765 (Credit for Increasing Research Activities) which is a part of your 2018 annual corporate form 1120 (US Corporation Income Tax Return).
  • 2. Claim your R&D tax credit on payroll tax form 941 (Employer’s Quarterly Federal Tax Return); you’ll need to work with your payroll processor to make this happen. We love working with Gusto, but just about every major payroll processor should be able to help.

When should I file the R&D tax credit payroll offset?

In early 2019, after you've closed out your 2018 books. Work with your CPA on an R&D tax credit study: once you've determined what your tax credit will be, add it to your 2018 annual corporate form 1120 and file the return. In the quarter following your 1120 filing, you can start applying those tax credits to your payroll taxes. For example, if you file your Form 1120 by March 15th, the first payroll tax offset you would receive is for Q2 2019.

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.

How much money can you save with the R&D tax credit?

You can save about 10 percent of your eligible R&D costs up to two hundred and fifty thousand dollars per year for up to five years. So, if you have about 2.5 million dollars in engineering R&D expenses for last year you can get that full credit.

How Can Startups Can Benefit from up to $250K R&D Tax Credits and Deductions?

Many young companies with annual sales of less than $5 million can apply up to $250,000 of their research and development (R&D) credit to reduce their payroll tax liability. This means that many unprofitable, young companies can cut their burn up to a quarter of a million dollars per year. This replaces the older rules that did not allow loss making businesses (i.e. most startups) from using these offets until they generated an income tax liability (i.e. a profit!) Your company should work with a qualified expert like Kruze to make sure that your business is eligible, and to conduct a solid study that only uses appropriate expenses that the IRS will agree with.

The information on this page 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; contact Kruze Consulting.