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Checklist for Maximizing Your R&D Tax Credit in 2022

Overview of the credit

R&D credit eligibility is much easier to qualify for than many startups may think. It can apply to product development, as well as to general operations such as new product development processes, software development, and other related quality improvement activities.

Your organization could be eligible for the R&D tax credit if it:

  • Devotes time and resources to creating new or innovative products
  • Improves existing products
  • Develops processes, patents, prototypes, or software
  • Hires designers, engineers, or scientists


1. Document qualified products and processes

The R&D credit may be claimed for both products and/or services and the respective development processes. This double qualification opportunity puts technology companies in a unique position to maximize the benefits.


If a company has designed a new product and must create a new production or software development process to produce the product they bring to market, both workstreams can qualify. Additionally, if you are developing any sort of hardware, the tooling costs incurred for production may qualify as well.

2. Record technical documentation consistently

The best way to ensure you will pass an R&D tax review is to ensure consistent technical documentation. This means you should be actively recording the following throughout your production process:

  • Specific start and completion dates
  • Description of the technical challenge
  • Iterations and versions taken to solve the challenge

The more detail and accuracy you are able to include per your research and development activities, the better.

‍3. Identify all qualified personnel

For most startups, salary is the main component of the R&D credit. The law allows for three different activities to qualify for credit:

  1. The performance of qualified activities
  2. The direct support of qualified activities
  3. The direct supervision of qualified activities


If a company is developing a new software as a service (SaaS) offering, the developers, and subject matter experts developing the product’s core value and functionalities are clearly performing qualified R&D activities. From there, an initial product/service must be built with the assistance of the company’s customer success and testing employees. Those individuals and activities may be considered the direct support of R&D. Lastly, assume one of the company’s engineering directors supervises the process from a technical point of view and reports the findings companywide. Those types of activities can also qualify for the credit as the direct supervision of R&D.

4. Identify and maximize appropriate cloud computing expenses

These days, most software companies are using cloud computing as a core part of their business. Only certain uses of cloud computing services count as qualified research expenses (QREs).

A qualified expense must be used in relation to a new or improved product or process, is technological in nature and there is a level of technical uncertainty that can be eliminated through a process of experimentation.


Software developers can use a cloud environment to not only perform their development work, but also to design a testing environment to quality control the new code.

Therefore, if there is an experiment you wanted to run, but you were worried about the expected cloud computing cost, you should be relieved that much of that cost is likely qualified to be credited back.

5. Opt for US based contractors and employees

‍While the pandemic has seen an increase in foreign workers and contractors supporting US technology companies, the R&D tax credit incentivizes companies to stay domestic when it comes to employing technical talent.

At most early stage companies the main cost of R&D is salaries. Noting that and the fact that only research activities conducted in the US will count as a qualified research expense, founders should think about using more US based employees or contractors to fuel their product development. There is certainly a tradeoff in labor costs, but the tax code in this case is certainly incentivizing the use of US based technical employees.

This list was created through internal and external research for optimizing your R&D credit for next year. Shoot us a note if you enjoyed the article and let us know if there is anything else you are doing that should be added to our list! Get in touch to file your R&D credit here.

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