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