When you hear “Research & Development,” what comes to mind?
If you’re picturing scientists in lab coats, bubbling beakers, and million-dollar labs — you’re not alone.
But here’s the truth: the R&D Tax Credit applies to far more businesses than most realize.
From steel mills and software companies to bakeries and breweries, innovation looks different in every industry — and the IRS rewards it.
This is worth a lot and affects more people than you think… so don’t leave to go potty on this one!
The Technical Side: Industrial & Scientific Innovation
Let’s start with the classic example — the kind of business most people expect to qualify.
Example: Steel Mill
- Improved heat treatment for higher-strength alloys
- Designed new energy-efficient smelting processes
Qualifying Activities:
- Process experimentation
- Payroll for employees continuously improving and testing production methods
- Simulation and prototype testing
2025 R&D Expenses: $2,000,000
Credit (20%): $400,000
Outcome: Large tax savings — plus a full deduction (less the credited amount) in 2025
In this case, the steel company saved $400,000 in taxes by documenting their research and development work.
Even though they were simply improving an existing process — not inventing something brand new — it qualified under the IRS’s four-part R&D test.
The Everyday Side: Innovation in the Kitchen
Now let’s look at the other side of the spectrum — a small business that doesn’t fit the “scientist” stereotype at all.
Example: Gluten-Free Bakery
- Developed proprietary gluten-free recipes
- Automated their ingredient mixing process
Qualifying Activities:
- Experimenting with new formulations
- Designing and testing automated production equipment
2025 R&D Expenses: $350,000
Credit (20%): $70,000
Outcome: Offsets payroll and income tax, with a $280,000 deduction
This bakery wasn’t wearing lab coats or running simulations — they were simply testing, tweaking, and improving their recipes and processes.
That’s the essence of R&D: solving uncertainty through experimentation.
So… What Really Counts as “R&D”?
According to the IRS, qualifying activities must pass a four-part test:
- Permitted Purpose – The goal must be to create or improve a product, process, or software.
- Technological Nature – The work relies on principles of physical science, biology, engineering, or computer science.
- Elimination of Uncertainty – The outcome wasn’t known at the start; the business had to test or experiment.
- Process of Experimentation – There’s a structured process to evaluate alternatives (e.g., trial, error, and refinement).
If your business tests, designs, prototypes, or improves how something is made or delivered — you might qualify.
This applies to industries like:
- Manufacturing
- Food and beverage
- Software and technology
- Construction and engineering
- Agriculture and equipment design
The Takeaway: Innovation Pays
R&D credits can result in tens or even hundreds of thousands of dollars in tax savings.
And unlike many credits, they don’t just offset income tax — they can reduce payroll taxes for qualifying small businesses.
Whether you’re developing new alloys or perfecting a gluten-free recipe, your work might qualify as R&D — and your business could be missing out on major savings if you’re not taking advantage of it.
Watch My R&D Shorts on YouTube
I recently made two quick YouTube Shorts that break these examples down visually — one showing the scientific side (steel mill example) and one showing the non-scientific side (gluten-free bakery).
Watch them both on my YouTube channel here:
Scientific side of the R&D Tax Credit: Here
Non-Scientific side of the R&D Tax Credit: Here
They’re under a minute each — but they might save your business thousands.
Next Step: Find Out If You Qualify
At Gundersons CFO & Bookkeeping, we help business owners uncover credits and deductions they didn’t even realize they were eligible for — R&D included.
We’ll walk you through what qualifies, how to document your expenses, and how to claim your credit correctly.
👉 Book your Right Fit Meeting today to find out if your business qualifies for the R&D Tax Credit.
www.gundersonsbookkeeping.com