Tax Credit for Startups

Posted on by Tim Rosenblatt

As part of my belief that startups are the new R&D, I want to introduce you to IRC ยง 41. This is a Federal Tax Credit for companies that do R&D. The credit can be used to decrease the amount of Federal Income Tax that a company pays -- it means you've got to have some net revenue to claim it, but if you're growing and committed to continued R&D on your product, you should be aware of this.

There is some work required on your end to get the credit, but if you are revenue-positive, check out this list of common myths about the credit. It's available for a fairly wide range of research activities, and you don't even have to own a lab coat! The engineering cost of building new products and finding product-market fit seems to be covered (although you should always ask your accountant to understand how it applies to you & what proof you need to give the IRS).

Here's a more technical description of the tax credit, from the Journal of Accountancy.

 
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