{"id":56381,"date":"2025-02-11T15:33:36","date_gmt":"2025-02-11T15:33:36","guid":{"rendered":"https:\/\/toggl.com\/blog\/?p=56381"},"modified":"2025-02-12T12:05:43","modified_gmt":"2025-02-12T12:05:43","slug":"rd-tax-credit","status":"publish","type":"post","link":"https:\/\/toggl.com\/blog\/rd-tax-credit","title":{"rendered":"R&amp;D Tax Credit: How to Maximize &amp; Claim Your Credits\u00a0"},"content":{"rendered":"\n<p>Innovation is key to maintaining a top market position. But creating new technologies and commercializing scientific discoveries is neither fast nor cheap.<\/p>\n\n\n\n<p>To help businesses, governments offer research and development tax credits \u2014 special deductions for research and innovation to offset income tax liabilities. For example, France offers a 30% tax credit (aka a discount) on R&amp;D expenses <a href=\"https:\/\/www.impots.gouv.fr\/international-professionnel\/tax-incentives\" target=\"_blank\">up to \u20ac100 million<\/a>. And until April 2024, the UK had a <a href=\"https:\/\/www.gov.uk\/guidance\/corporation-tax-research-and-development-tax-relief-for-small-and-medium-sized-enterprises\" target=\"_blank\">186% super-deduction<\/a> for qualified small businesses (now restored to 100%).&nbsp;<\/p>\n\n\n\n<p>In the US, R&amp;D tax incentives are available at <span style=\"box-sizing: border-box; margin: 0px; padding: 0px;\"><strong>the federal (through the IRS)<\/strong>&nbsp;and&nbsp;<strong>state (through your local Department of Revenue)<\/strong>&nbsp;levels<\/span>.&nbsp;<\/p>\n\n\n\n<p>The federal research &amp; development tax credit (formally known as the Credit for Increasing Research Activities) allows companies to<strong> claim 6-10% of qualifying R&amp;D expenses as a federal income tax deduction<\/strong>. You can receive up to $250K in payroll taxes if you meet eligibility criteria. <\/p>\n\n\n\n<p>At the state level, New York offers an extra <a href=\"https:\/\/www.tax.ny.gov\/pit\/credits\/life-sciences-research-and-development-tax-credit.htm\" target=\"_blank\">10-20% R&amp;D tax credits<\/a> for local businesses, while <a href=\"https:\/\/cdn.ymaws.com\/www.delawarebio.org\/resource\/resmgr\/custom_pages\/why_delaware\/rd_credit_fact_sheet.pdf\" target=\"_blank\">Delaware<\/a> refunds the difference between the company&#8217;s in-state tax liability and the total R&amp;D tax credit given.&nbsp;<\/p>\n\n\n\n<p>Naturally, the \u201coffer\u201d comes with some strings attached. Companies must provide the IRS with data on their R&amp;D spend, including specifics about activity types, duration, and cost. Getting those numbers correct can be daunting, especially as the rules constantly change.&nbsp;<\/p>\n\n\n\n<p>This guide answers all questions about the federal R&amp;D tax credit, from eligibility and qualification to accurate reporting, in accordance with the latest rules and automated data collection tools.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">TL;DR \u2014 Key Takeaways<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Federal R&amp;D tax credit applies to<strong> qualified <\/strong><strong>expenditures<\/strong> related to building new products, commercializing scientific findings, or investing money in other process enhancements.&nbsp;<\/li>\n\n\n\n<li>New requirements came into effect for the 2024 tax year (reported in 2025), and it&#8217;s important to stay updated on changes to maximize your credits.<\/li>\n\n\n\n<li>You must<strong> operate as a legally registered entity and perform research activities that pass a four-part qualification test <\/strong>to qualify for an R&amp;D tax credit. <\/li>\n\n\n\n<li>Your gross receipts must not <strong>exceed $5 million<\/strong> to claim the R&amp;D payroll tax credit.<\/li>\n\n\n\n<li>If you pass all four parts of the qualification test, you can claim a tax credit for <strong>qualified research expenses<\/strong><strong> <\/strong>like employee salaries, research supplies, contracting expenses, software, and hardware costs.&nbsp;<\/li>\n\n\n\n<li>You must keep tangible proof of all your activities in case of an IRS audit. That\u2019s the real challenge because many teams <strong>don\u2019t use time-tracking tools, keep poor project documentation, or just don\u2019t have an effective process for R&amp;D reporting data collection.&nbsp;<\/strong><\/li>\n\n\n\n<li>To streamline R&amp;D tax reporting, embed a time-tracking tool into your workflows to automatically <strong>capture R&amp;D-related work hours, tasks, and expenses.<\/strong>&nbsp;<\/li>\n\n\n\n<li>Toggl Track enables you to seamlessly capture <strong>qualified research activities<\/strong><strong> <\/strong>and produce auditable logs for reporting. Boasting 100% user adoption, our time-tracking tool helps companies<strong> claim the maximum available <\/strong><strong>tax credits<\/strong>.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What to know about the US R&amp;D tax credit in 2025<\/h2>\n\n\n\n<p>The R&amp;D tax credit was introduced in the Economic Recovery Tax Act of 1981 and was renewed and extended multiple times before becoming a permanent fixture of the Internal Revenue Code (IRC) in 2015.&nbsp;<\/p>\n\n\n\n<p>Since then, R&amp;D tax credit rules have changed significantly, but CPAs often recommend startups and small businesses apply for them (as they get the most perks!) Larger companies engaged in innovative work may also take advantage of the benefit to offset their tax burden.&nbsp;<\/p>\n\n\n\n<p>Following the 2024 changes, here\u2019s a recap of <strong>key US R&amp;D tax credit changes in 2025<\/strong> to look out for:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>In effect<\/th><th>Pending approvals<\/th><\/tr><\/thead><tbody><tr><td>\u2022 <strong>Payroll tax credits<\/strong> are available to new and existing businesses, generating <strong>gross receipts of less than $5 million <\/strong>for the tax year or<strong> no gross receipts for any tax year before the preceding 5-tax-year period<\/strong><br><br>\u2022 <strong>Flow-through entities<\/strong> (like an S corporation or LLC, treated as a partnership for tax purposes) can also <strong>claim payroll tax deductions<\/strong>.&nbsp;<br><br>\u2022 <strong>Updated Form 6765 <\/strong>requires businesses to provide more <strong>qualitative<\/strong> (not just quantitative) data about their research activities.&nbsp;<br><br>\u2022 The new Section G is<strong> optional for 2024 tax returns<\/strong> (processing year 2025) but will <strong>become mandatory for tax year 2025<\/strong> (processing year 2026) for everyone except qualified small businesses and taxpayers with lower qualified research expenses (QREs).<\/td><td>\u2022 <strong>Reversal of R&amp;D expense amortization. <\/strong>Under the Tax Cuts and Jobs Act (TCJA), companies must spread R&amp;D expenses <strong><em>over five years<\/em><\/strong> for domestic research and <strong><em>over 10 years <\/em><\/strong>for foreign research. A vote to repeal it didn\u2019t pass Congress, but the new administration is <a href=\"https:\/\/www.forbes.com\/sites\/deanzerbe\/2024\/12\/17\/research-tax-credit---elections-bring-relief-on-amortization\/\" target=\"_blank\">keen to adopt it<\/a>.&nbsp;<br><br>\u2022 If it succeeds, businesses could claim domestic R&amp;D expenses in the same year (including all R&amp;D expenses amortized until 2022). However, amortization would still apply to all non-US R&amp;D expenditures.<br><br>\u2022 <strong>Employee Retention Credit (ERC).<\/strong> Introduced during the pandemic, ERC allowed businesses to claim substantial payroll tax credits. But it soon became a major fraud source, forcing the IRS to <a href=\"https:\/\/www.irs.gov\/newsroom\/to-protect-taxpayers-from-scams-irs-orders-immediate-stop-to-new-employee-retention-credit-processing-amid-surge-of-questionable-claims-concerns-from-tax-pros\" target=\"_blank\">pause new ERC claims<\/a> processing payouts on September 14, 2023.&nbsp;<br><br>\u2022 Since then, the IRS hasn\u2019t resumed ERC processing, causing a flurry of lawsuits and taxpayer complaints. The filing <strong>deadline for 2021 ERC claims is April 15, 2025<\/strong> \u2014 and it\u2019s still uncertain what the IRS will decide.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>It\u2019s a mixed bag of changes. On the pro side, companies <strong>can now receive up to 20 cents in credits for every dollar spent on <\/strong><strong>qualified research activities<\/strong><strong> (QRAs). <\/strong>But Form 6765 has become more detailed and the IRS is <em>stringent<\/em> about auditing the submitted income tax returns.&nbsp;<\/p>\n\n\n        <div class=\"mb-8\">\n            <span class=\"block text-dark-purple-100 opacity-60 uppercase mb-2 text-sm font-bold\">Further Reading:<\/span>\n            <div class=\"border-t-[3px] border-b border-yellow-100 py-4 pb-2 lg:grid lg:gap-8\">\n                                    <div class=\"mb-4 lg:mb-2\">\n                        <a class=\"flex items-center hover:italic hover:text-dark-purple-80\" href=\"https:\/\/toggl.com\/blog\/form-6765\" title=\"IRS Form 6765: What&#8217;s Changed &amp; How to Get Your Tax Credit\" aria-label=\"IRS Form 6765: What&#8217;s Changed &amp; How to Get Your Tax Credit\">\n                            <img decoding=\"async\" loading=\"lazy\" class=\"rounded-full w-14 h-14 mr-4 object-cover\" src=\"https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/form-6765-1-112x67.jpg\" alt=\"IRS Form 6765: What&#8217;s Changed &amp; How to Get Your Tax Credit\" width=\"56\" height=\"56\">\n                            <span class=\"font-semibold font-heading leading-snug\">IRS Form 6765: What&#8217;s Changed &amp; How to Get Your Tax Credit<\/span>\n                        <\/a>\n                    <\/div>\n                            <\/div>\n        <\/div>\n    \n\n\n<h3 class=\"wp-block-heading\">Who qualifies for the R&amp;D tax credit?<\/h3>\n\n\n\n<p>Technically, <strong>any type of business qualifies<\/strong> if it fits the requirements of legal structure, research activities, and revenue cap. This includes:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>All registered legal entities, including partnerships, S-corporations, LLCs, and corporations that qualify for the federal R&amp;D tax credit.<\/li>\n\n\n\n<li>Businesses whose research relates to a product, process, software, technique, formula, or invention.<\/li>\n\n\n\n<li>Businesses whose qualified research activities aim to develop or enhance a qualitative or quantitative characteristic for the above (e.g., better functionality, durability, quality, or performance). These activities must be rooted in hard science or engineering principles to resolve existing technological uncertainty. Finally, the research process must be systemic (e.g., it must follow a logical, explainable flow).<\/li>\n\n\n\n<li>Small businesses generating under $10 million in gross receipts can also offset payroll taxes with the R&amp;D credit.<\/li>\n<\/ul>\n\n\n        <div class=\"mb-8 top-tip\">\n            \n                            <span class=\"flex items-center text-dark-purple-100 opacity-60 uppercase mb-2 text-sm font-bold\">\n                    <img decoding=\"async\" class=\"!w-6 !h-6 !object-contain mr-2\" src=\"https:\/\/toggl.com\/blog\/wp-content\/themes\/toggl-mjtweaver\/img\/brain.png\" alt=\"Top tips to enlarge those brains\" aria-label=\"Top tips to enlarge those brains\" width=\"24\" height=\"24\" loading=\"lazy\">    \n                    <span>Top tip:<\/span>\n                <\/span>\n            \n            <div class=\"bg-yellow-30 border-t-[3px] border-yellow-100 px-6 pt-6 pb-2\"><p>Generally, it\u2019s a good idea to apply if you run a business in tech (software and hardware), aerospace, biotech, pharmaceuticals, or green energy. In <a href=\"https:\/\/www.pa.gov\/content\/dam\/copapwp-pagov\/en\/revenue\/documents\/news-and-statistics\/reportsstats\/taxcredits\/researchdevcredit\/documents\/2018_rd_report.pdf\" target=\"_blank\">Connecticut<\/a>, for example, manufacturing companies were top R&amp;D tax credit recipients. Meanwhile, in <a href=\"https:\/\/business.ca.gov\/california-competes-tax-credit\/awardee-list\/\" target=\"_blank\">California<\/a>, many accounting services providers, apparel, automotive, beverage, and construction companies have also benefited.<\/p>\n<\/div>\n        <\/div>\n    \n\n\n<h2 class=\"wp-block-heading\">How to pass the four-part test to qualify for the R&amp;D tax credit<\/h2>\n\n\n\n<p>To get approved for an R&amp;D tax credit, you must pass the four-part test defined by the <a href=\"https:\/\/www.irs.gov\/pub\/irs-regs\/research_credit_basic_sec41.pdf\" target=\"_blank\"><strong>IRC<\/strong><strong> Section 41<\/strong><\/a><strong>. <\/strong>The parts include a Business Component Test, Technological in Nature Test, Elimination of Uncertainty Test, and Process of Experimentation Test.<\/p>\n\n\n\n<p>If you fail one segment, your claim won\u2019t get approved. Here\u2019s how to avoid that:&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">1. Business Component Test<\/h3>\n\n\n\n<p>Your research <em>must <\/em>clearly relate to a core aspect of your business \u2014 a workflow, operating procedure, software, or product. Its goal must be to produce a measurable improvement in its performance, functionality, or reliability, not just aesthetics.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>\u2705 Qualifying activities<\/th><th>\u274c Non-qualifying activities<\/th><\/tr><\/thead><tbody><tr><td>\u2022 Developing a more energy-efficient battery version&nbsp;<br>\u2022 Building software for recruiting workflow optimization&nbsp;<br>\u2022 Brewing a new beverage with 50% more nutrients<\/td><td>\u2022 Collecting customer data with no clear objectives&nbsp;<br>\u2022 Purchasing and installing a new MarTech platform&nbsp;<br>\u2022 Changing the product\u2019s ergonomics and color palette <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>\ud83d\udca1 Tips for passing this stage:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Document how the research objectives relate to your business operations<\/li>\n\n\n\n<li>State the key research hypothesis and their expected impacts&nbsp;<\/li>\n\n\n\n<li>Share tangible proofs like a patent application, solution blueprints, or software architecture&nbsp;<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">2. Technological in Nature Test&nbsp;<\/h3>\n\n\n\n<p>Your research activities <em>must <\/em>be rooted in <strong>hard sciences <\/strong>like engineering, chemistry, physics, or computer science. They can\u2019t be purely based on arts, social, or humanities research.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>\u2705 Qualifying activities<\/th><th>\u274c Non-qualifying activities<\/th><\/tr><\/thead><tbody><tr><td>\u2022 Developing a reinforcement learning agent for autonomous driving&nbsp;<br>\u2022 Creating new drug formulas using biotech research&nbsp;<br>\u2022 Creating a new concrete formulation with higher tensile stress resistance<\/td><td>\u2022 Relying on user experience research to improve product interface&nbsp;<br>\u2022 Hosting customer focus groups to validate a new product prototype&nbsp;<br>\u2022 Using new typefaces and logos for packaging<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>\ud83d\udca1 Tips for passing this stage:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Write a memo explaining which scientific principles the project involves&nbsp;<\/li>\n\n\n\n<li>Keep records of any simulations, models, and calculations&nbsp;<\/li>\n\n\n\n<li>Present a physical prototype or a digital model under development&nbsp;<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">3. Elimination of Uncertainty<\/h3>\n\n\n\n<p>You <em>must <\/em>demonstrate your project aims to resolve uncertainty about a product development or improvement \u2014 meaning you didn\u2019t have a clear answer before starting.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>\u2705 Qualifying activities<\/th><th>\u274c Non-qualifying activities<\/th><\/tr><\/thead><tbody><tr><td>\u2022 Comparing several ML models for recall and prediction accuracy&nbsp;<br>\u2022 Testing several material types for a new drone frame&nbsp;<br>\u2022 Refining an automated claims management process with poor outcomes<\/td><td>\u2022 Fixing bugs in a recently installed business analytics tool&nbsp;<br>\u2022 Customizing an off-the-shelf CRM app&nbsp;<br>\u2022 Replacing the current material with a well-known alternative<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>\ud83d\udca1 Tips for passing this stage:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Document your problems, challenges, and unknowns encountered in the process&nbsp;<\/li>\n\n\n\n<li>Give evidence of trying different methods to solve the research problem&nbsp;<\/li>\n\n\n\n<li>Keep internal research notebooks, memos, and testing reports&nbsp;<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">4. Process of Experimentation<\/h3>\n\n\n\n<p>Your research must be systematic, meaning it should follow a logical process of testing different approaches and refining solutions through modeling, simulation, prototyping, or other iterative methods.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>\u2705 Qualifying activities<\/th><th>\u274c Non-qualifying activities<\/th><\/tr><\/thead><tbody><tr><td>\u2022 Benchmarking performance of two predictive analytics model versions&nbsp;<br>\u2022 Split testing app loading speeds with two different tech stacks&nbsp;<br>\u2022 Doing finite element analysis to compare structural stress tolerance<\/td><td>\u2022 Updating a software component without interactive testing&nbsp;&nbsp;<br>\u2022 Using a reference architecture to implement cloud storage&nbsp;<br>\u2022 Going with the first proposed app design<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>\ud83d\udca1 Tips for passing this stage:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Show that compared multiple alternatives before finding the right option&nbsp;<\/li>\n\n\n\n<li>Keep records of early prototypes, model versions, and simulation results&nbsp;<\/li>\n\n\n\n<li>Document all failed attempts and explain why others worked&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>If you pass the four-part test, you\u2019ll be able to claim back an income tax credit for <strong>qualified research expenses<\/strong><strong> (QREs) <\/strong>like employee wages, supplies, contract research, and hardware costs.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why R&amp;D tax reporting is so difficult<\/h2>\n\n\n\n<p>The IRS can legally ask for the above proofs for <strong>five years<\/strong> after the year of your R&amp;D and claim submission. During this time, you may be randomly selected (i.e., audited for no particular reason) or scrutinized for making large or frequent claims. <strong>Beware<\/strong>: Any discrepancies in the stated expenses versus supporting documentation will require you to dig deep and make extra justifications.<\/p>\n\n\n\n<p>This makes R&amp;D tax compliance rather taxing (pun intended), even with a CPA on call.&nbsp; Because it\u2019s the business&#8217;s responsibility to keep meticulous records, track all time and spending on qualifying activities, and present these as easy-to-follow reports to the Feds.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">\ud83d\uddc2\ufe0f Administrative burden<\/h3>\n\n\n\n<p>A business <em>must <\/em>prove it\u2019s spent money or other resources on R&amp;D projects <em>(not just regular operational activities<\/em>) to qualify for R&amp;D tax credits.&nbsp;<\/p>\n\n\n\n<p>This adds a lot to people\u2019s workload. Department managers and HR must explain what records employees need to keep and in which format. You may need to invest in specialized software (e.g., an MLOps platform to track model development experiments) or extra secure cloud storage.<\/p>\n\n\n\n<p>R&amp;D teams need to improve their documentation, while a compliance team (if you have one) must ensure records meet changing regulations and fix errors. This leads to endless ping-pong between departments as people scramble to find missing documents or finalize reports before the tax deadline.<\/p>\n\n\n        <div class=\"mb-8 top-tip\">\n            \n                            <span class=\"flex items-center text-dark-purple-100 opacity-60 uppercase mb-2 text-sm font-bold\">\n                    <img decoding=\"async\" class=\"!w-6 !h-6 !object-contain mr-2\" src=\"https:\/\/toggl.com\/blog\/wp-content\/themes\/toggl-mjtweaver\/img\/brain.png\" alt=\"Top tips to enlarge those brains\" aria-label=\"Top tips to enlarge those brains\" width=\"24\" height=\"24\" loading=\"lazy\">    \n                    <span>Top tip:<\/span>\n                <\/span>\n            \n            <div class=\"bg-yellow-30 border-t-[3px] border-yellow-100 px-6 pt-6 pb-2\"><p><b>Hair-raising fact: <\/b>The previous (shorter) version of Form 6765 added <a href=\"https:\/\/taxfoundation.org\/research\/all\/federal\/research-and-development-tax\/\" target=\"_blank\">285,281 hours<\/a> of compliance burden for US businesses. The new (longer) form will multiply these numbers.<\/p>\n<\/div>\n        <\/div>\n    \n\n\n<h3 class=\"wp-block-heading\">\u23f1\ufe0f No way to accurately (or easily) track R&amp;D time<\/h3>\n\n\n\n<p>No company spends 100% of its time on qualified R&amp;D. Even prolific \u201cresearch\u201d people like engineers or data scientists will switch between regular ops, admin, and innovative tracks.<\/p>\n\n\n\n<p>Besides logging hours (or estimates,) you\u2019ll need to assign them to different projects, tasks, and activities and keep some records (e.g., a <a href=\"https:\/\/toggl.com\/blog\/what-is-a-timesheet\">timesheet<\/a>) as proof for authorities.<\/p>\n\n\n\n<p>Building an <a href=\"https:\/\/toggl.com\/blog\/how-to-get-employees-to-track-time\">employee time-tracking habit<\/a> can be hard with manual timers and spreadsheets. Your team will be frustrated, skip obligations, or log guesstimations. In the \u201cbest\u201d case\u2026 you\u2019ll leave R&amp;D money on the table. In the worst\u2026you risk painful regulatory investigations.<\/p>\n\n\n        <div class=\"mb-8 top-tip\">\n            \n                            <span class=\"flex items-center text-dark-purple-100 opacity-60 uppercase mb-2 text-sm font-bold\">\n                    <img decoding=\"async\" class=\"!w-6 !h-6 !object-contain mr-2\" src=\"https:\/\/toggl.com\/blog\/wp-content\/themes\/toggl-mjtweaver\/img\/brain.png\" alt=\"Top tips to enlarge those brains\" aria-label=\"Top tips to enlarge those brains\" width=\"24\" height=\"24\" loading=\"lazy\">    \n                    <span>Top tip:<\/span>\n                <\/span>\n            \n            <div class=\"bg-yellow-30 border-t-[3px] border-yellow-100 px-6 pt-6 pb-2\"><p>Companies leave <a href=\"https:\/\/silo.tips\/download\/the-ripple-effect-of-an-rd-tax-credit-study-s-real-costs\" target=\"_blank\">10-30%<\/a> of their R&amp;D tax credit unclaimed due to the expense and difficulty of effectively documenting it.<\/p>\n<\/div>\n        <\/div>\n    \n\n\n<h3 class=\"wp-block-heading\">\ud83d\udcd1 Poor documentation<\/h3>\n\n\n\n<p>The IRS wants R&amp;D \u201creceipts\u201d \u2014 and patchy records mean smaller rebates, increased audit risks, or outright claims denials.<\/p>\n\n\n\n<p>In June 2024, the IRS published a <a href=\"https:\/\/www.irs.gov\/newsroom\/irs-releases-revised-draft-form-6765-credit-for-increasing-research-activities-following-public-comment\" target=\"_blank\">revised draft of Form 6765<\/a>, an update to its &#8220;preview&#8221; of changes to Form 6765, released in September 2023. The new version outlines qualitative and quantitative information requirements many companies must provide for the 2025 tax return (due in 2026).&nbsp;<\/p>\n\n\n\n<p>For now, the following information in Section G remains optional:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th><strong>Section G Qualitative information<\/strong><\/th><th><strong>Section G Quantitative information<\/strong><\/th><\/tr><\/thead><tbody><tr><td>\u2022 Name or identifier of the business component (e.g., Project Alpha #1)&nbsp;<br>\u2022 Business component type (e.g., product, process, software, formula, etc.)&nbsp;<br>\u2022 Component designation (e.g., a predictive pricing model)&nbsp;<br>\u2022 Information sought to be discovered (e.g., main research hypothesis)<\/td><td>\u2022 Employee wage expenses allocated between direct research, supervision, and support by the business component<br>\u2022 Costs of supplies, equipment rental or lease, and subcontractor expenses for each component<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>In other words \u2014 the IRS calls for more detailed documentation during tax reporting. Implementing these changes will be time-consuming without extra support tools.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How to maximize R&amp;D tax credits with automated time tracking<\/h2>\n\n\n\n<p>R&amp;D tax reporting is about demonstrating clear-cut evidence you\u2019re claiming money for <em>qualified <\/em>activities. Not a cent more.&nbsp;<\/p>\n\n\n\n<p>Spreadsheets have typically been a go-to solution for collecting and storing this evidence, especially for smaller companies. But most teams quickly realize spreadsheets are too tedious and time-consuming to maintain, especially as businesses grow. At the other end of the spectrum, many people management and payroll apps are often too expensive and complicated for average users.&nbsp;<\/p>\n\n\n\n<p>Toggl Track is the perfect Goldilocks solution for small to mid-sized businesses <span style=\"box-sizing: border-box; margin: 0px; padding: 0px;\">\u2014 it\u2019s \u2018just right\u2019 for teams looking for sleek, scalable, and secure&nbsp;<a href=\"https:\/\/toggl.com\/track\/automated-time-tracker\/\" target=\"_blank\" rel=\"noopener\">automated time tracking<\/a>&nbsp;of QRAs and QREs. It\u2019s more efficient than spreadsheets and has<\/span> less distracting functionality than more complicated platforms.&nbsp;<\/p>\n\n\n\n<p>With a fast, one-time setup, Toggl Track allows you to automatically log all relevant tasks, projects, and expenses for teams of any size. After powering it up automatically on desktop devices and activating it in one click on mobile, Toggl Track seamlessly captures all work activities, allowing users to easily share their QRAs with admins. <\/p>\n\n\n\n<p>Managers can easily account for related expenses using different billing rates (and easily track budgets, too!).<\/p>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"2000\" height=\"1102\" src=\"https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting.png\" alt=\"Toggl Track Ananlytics chart setting\" class=\"wp-image-56384\" style=\"width:839px;height:auto\" srcset=\"https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting.png 2000w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-300x165.png 300w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-1024x564.png 1024w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-768x423.png 768w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-1536x846.png 1536w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-733x404.png 733w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-1152x635.png 1152w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-1089x600.png 1089w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-1463x806.png 1463w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Toggl-Track-Ananlytics-chart-setting-112x62.png 112w\" sizes=\"auto, (max-width: 2000px) 100vw, 2000px\" \/><\/figure>\n\n\n\n<p>Toggl Track also includes audit and lock time entries to avoid errors and prove data integrity in case of an IRS audit. You can also share comprehensive reports with your accountants that break down time and expenses spent on various projects and activities \u2014 all of which must be disclosed in Section G.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Toggl Track: Your key to tracking qualified research activities accurately&nbsp;&nbsp;<\/h2>\n\n\n\n<p>We\u2019ve built a <a href=\"https:\/\/toggl.com\/track\/automated-time-tracker\/\">time tracking experience<\/a> that practically runs itself across desktop, web, and mobile and in 100+ popular business products (with a simple integration).&nbsp;This means your team will no longer need to:<\/p>\n\n\n\n<p>\u274c Keep messy research activity logs in a notebook&nbsp;<\/p>\n\n\n\n<p>\u274c Guess-timate hours for different tasks and projects<strong>&nbsp;<\/strong><\/p>\n\n\n\n<p>\u274c Complain about hours wasted on \u201cpointless\u201d data entry&nbsp;<\/p>\n\n\n\n<p>At the same time, you\u2019ll get audit-ready reports for R&amp;D tax credit claims and end-of-year reporting:&nbsp;<\/p>\n\n\n\n<p>\u2705 Know exactly how much time goes into R&amp;D projects with reports to track progress, set pace, and prepare reports.&nbsp;<\/p>\n\n\n\n<p>\u2705 Capture qualified research expenses like employee wage and subcontractor expenses and get predictive budgeting insights.&nbsp;<\/p>\n\n\n\n<p>\u2705 Streamline compliance with exportable expense reports and time logs without paying a ton for more complex software.&nbsp;<\/p>\n\n\n\n<p>\u2705 Benefit from baked-in data security and integrity \u2014 private data hosting, locked time entries, SSO, and not a hint of employee surveillance.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"561\" src=\"https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--1024x561.png\" alt=\"Insight Profitability\" class=\"wp-image-56385\" srcset=\"https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--1024x561.png 1024w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--300x164.png 300w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--768x421.png 768w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--1536x842.png 1536w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--2048x1123.png 2048w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--737x404.png 737w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--1152x632.png 1152w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--1094x600.png 1094w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--1470x806.png 1470w, https:\/\/toggl.com\/blog\/wp-content\/uploads\/2025\/02\/Insight-Profitability--112x61.png 112w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>\u2026And if you run a bigger team, our <a href=\"https:\/\/toggl.com\/track\/pricing\/\">Enterprise plan<\/a> also includes a sweet volume discount and an even sweeter Customer Success Manager to help you set up R&amp;D tracking dashboards and onboard new users. \ud83d\ude09<\/p>\n\n\n\n<p>Get a done-for-you setup experience \u2014 full Toggl Track integration into your workflows, user configurations, and custom dashboard views \u2014 without a premium price tag.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Tips for 100% team adoption<\/h2>\n\n\n\n<p>Because Toggl Track is simple and non-intrusive, it\u2019s an easy \u201csell\u201d for the teams.&nbsp;<\/p>\n\n\n\n    <div class=\"bp-cta my-8 p-6 rounded-[10px] relative text-center sm:pt-8 sm:pb-9 sm:my-12 md:flex md:gap-8 md:text-left md:items-center md:py-8 md:px-9 md:mt-8 md:mb-3 bg-pink-20\" data-colour-scheme=\"track\">\n        <div class=\"md:flex-1\">\n                            <h5 class=\"font-heading text-[1.35rem] font-bold max-w-[90%] mx-auto mt-1 mb-2 md:mt-0 md:ml-0\">Netconomy achieved 100% adoption<\/h5>\n                            <p class=\"mb-0 !text-base\">&#8220;There is hardly any other solution that could handle such a large amount of data while providing a smooth UX experience for the team of 500.\u201d<\/p>\n                    <\/div>\n\n                    <a class=\"inline-flex cursor-pointer min-h-12 text-lg justify-center items-center rounded-[100px] py-2.5 px-6 no-underline font-heading relative z-[2] hover:italic hover:bg-[#564260] mt-4 md:mt-0 bg-pink-100 text-white\" href=\"https:\/\/toggl.com\/track\/customers\/netconomy\/\" title=\"View case study\">View case study<\/a>\n            <\/div>\n\n\n\n<p>Engineers, software developers, data scientists, and C-suite members across industries love using Toggl Track. To join them, here\u2019s how to ensure a smooth and streamlined adoption experience:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Host a user training session <\/strong>(together with our Customer Success team on Enterprise plans), explaining the why and how of using time-tracking for R&amp;D activities.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Set up a Slack channel <\/strong>to answer any follow-up questions, share more features, and troubleshoot issues.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Document all new requirements<\/strong> in a shared document in a company wiki for quick reference.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Send an update on when time-tracking goes into effect. <\/strong>Give people about a week to play with our tool and have their A-ha moment.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Configure automatic reminders <\/strong>to ensure everyone logs their activity on time and in line with compliance requirements.&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Add time-tracking training to your onboarding program<\/strong> for new hires to quickly build their habit.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Learn how to increase your R&amp;D tax credit with time tracking during a free, personalized demo<\/h2>\n\n\n\n<p>R&amp;D tax reporting doesn\u2019t have to suck the life out of your brightest people or leave you with a ton of gray hair due to compliance fears.&nbsp;<\/p>\n\n\n\n<p>With Toggl Track, you can effortlessly meet all the reporting obligations on Form 6765 and confidently claim the maximum applicable credit percentage.&nbsp;<\/p>\n\n\n\n<p>Should anyone ask questions, you\u2019ll use Toggl Track\u2019s reporting capabilities to whip up irrefutable proof of your innovative R&amp;D work.&nbsp;<\/p>\n\n\n\n<p>Get the full experience of seamless R&amp;D tax reporting with a walk-through from our team, showing all product features and data dashboard.&nbsp;Book your free demo <a href=\"https:\/\/toggl.com\/track\/demo-request\/\"><strong>here<\/strong><\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Innovation is key to maintaining a top market position. But creating new technologies and commercializing scientific discoveries is neither fast nor cheap. To help businesses,&#8230;<\/p>\n","protected":false},"author":640,"featured_media":56382,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[996],"tags":[],"class_list":["post-56381","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-time-tracking"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>R&amp;D Tax Credit: How to Maximize &amp; Claim Your Credits\u00a0<\/title>\n<meta name=\"description\" content=\"Learn how to maximize your R&amp;D tax credit with our guide about qualifying activities and how tools like Toggl Track simplify compliance.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/toggl.com\/blog\/rd-tax-credit\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"R&amp;D Tax Credit: How to Maximize &amp; 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