Section 174A
The Code section created by the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) restoring immediate expensing of domestic research and experimental costs for tax years beginning after December 31, 2024. It is a deduction, not a credit, and it is not an alternative to §41 - you can take both, subject to the §280C(c) coordination. Most of its benefit is timing; the permanent benefit in an R&D program comes from the credit.
In depth: Section 174A expensing
Section 280C(c) election
IRC §280C(c); Treas. Reg. §1.280C-4
The choice that prevents a double benefit on the same dollars. Either claim the full credit and reduce the research deduction by the credit amount, or elect the reduced credit - the credit multiplied by 79% for a taxpayer at the 21% corporate rate - and keep the deduction intact. The election is generally made on a timely filed original return, including extensions, and is irrevocable for that year once made. The reported figure also drives the §41(h) ceiling, the §38 limitation and any state credit keyed to the federal amount.
In depth: Calculation methods, Section 174A expensing
Section 3401(a) wages
The wage definition §41 borrows for the largest QRE category: remuneration for services subject to income tax withholding, in practice the Form W-2 Box 1 figure. The employer’s share of FICA and unemployment tax, the retirement match and health premiums sit outside it and are not QREs. Cash bonuses are inside it, and equity compensation that runs through Box 1 generally is too, though whether a given amount belongs to that year and to that person’s qualified services is a fact a study has to establish.
In depth: Qualified research expenses
Section 41
The Internal Revenue Code section that creates the credit for increasing research activities, commonly called the R&D tax credit. It defines qualified research (§41(d)), the expenses that count (§41(b)), the two computation methods (§41(a) and §41(c)), the controlled-group rules (§41(f)) and the payroll-tax election for small businesses (§41(h)). It never mentions an industry: qualification is decided by the activity, not by the sector you file under.
In depth: The R&D credit guide
Section 6001
The general recordkeeping provision: every taxpayer must keep records sufficient to establish the items shown on the return. Together with Treas. Reg. §1.41-4(d), which requires records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible, it is what actually binds a research credit claim. No format is prescribed and no template is blessed, which is why a vendor claiming the regulations mandate a particular documentation product is selling rather than citing.
In depth: Documentation and substantiation
Section G (Form 6765)
The business component information section added in the Dec. 2024 revision of Form 6765. For each reported component it asks for the name or identifier, the type, whether software is internal-use, a description of the information sought to be discovered (currently required only on amended returns), and that component’s QREs broken out by category. Components are reported in descending order by QRE until 80% of total QREs is covered, capped at 50 components. Its phase-in and its exceptions have been revised more than once; confirm them against the current-year instructions.
In depth: Documentation and substantiation
Shrink-back rule
Treas. Reg. §1.41-4(b)(2)
What happens when a business component as a whole fails the four-part test: the test is applied again to the most significant subset of elements within it, and that subset can qualify on its own. The rule only ever shrinks. It does not let you aggregate several components into a larger one that passes, and a shrink-back is a determination that has to be documented at the level it was actually made.
In depth: The four-part test
Start-up company base
IRC §41(c)(3)(B)
The special fixed-base percentage regime for taxpayers with no meaningful 1984-1988 history. The percentage begins at a statutory 3% for the first several credit years and then moves toward the taxpayer’s own QRE-to-receipts ratio on a schedule set by the statute. It is a genuine alternative to reconstructing a base period that cannot be substantiated, but eligibility is a fact question about your first years of receipts and research.
In depth: Calculation methods
State R&D credit
A state-level research credit, which most often borrows the federal QRE definition but sets its own base period, rate, cap, carryforward and cash character. The federal method you elect does not automatically govern the state computation. Sometimes the honest answer is that your state does not have one, or that its program is a certificate award rather than a credit you compute - and a number that depends on an award is a ceiling, not an entitlement.
In depth: State R&D credits
Substantially all
A threshold that appears twice in §41 with two different meanings, which is a common source of confusion. In the process-of-experimentation test it means 80% or more of a business component’s research activities, measured on a cost or other consistently applied reasonable basis (Treas. Reg. §1.41-4(a)(6)). In the wage rules it means 80% or more of an individual’s services for the year, which is the condition for treating all of their wages as qualified (Treas. Reg. §1.41-2(d)(2)).
In depth: The four-part test, Qualified research expenses
Substantiation
The evidence that supports what was claimed, organized so that someone who was not there can follow it. For a research credit that means records resolving to the business component: what the component was, what was uncertain, which alternatives were evaluated, who worked on it, and how each dollar was traced. Substantiation is not a document a vendor hands you at the end; it is the record your business already generates, captured while the work is happening and organized before you need it.
In depth: Documentation and substantiation
Supplies
IRC §41(b)(2)(A)(ii)
Tangible property used in the conduct of qualified research, other than land or improvements to land and other than property subject to depreciation. Prototype materials, test articles, scrapped first runs and consumed reagents are the usual examples. Capital equipment is carved out by the statute, so a test rig you own is not a supply however much research it enables.
In depth: Qualified research expenses
