The government is on your side when it comes to innovation. The very government that loves to collect taxes may be willing to give some of that money back through a credit that encourages innovation.

If your startup qualifies for the R&D tax credit, businesses can deduct R&D expenses up to $250,000 per year from payroll tax or an unlimited amount against income tax. This credit could save you millions of dollars.

It's important to start the review process early so that you can take advantage of all opportunities, and to know that not all opportunities can be used at the same time.

Where to begin

It may seem obvious, but everything starts with great accounting. The first step in getting an accurate calculation is your records. It is important to keep technical records in good order. You need to be able to provide evidence of the process. Even an investor presentation about progress on the product could be considered backup documentation.

Any activity that involves engineering, physics, biochemistry, medical, hard sciences, computer sciences, or mathematics is almost certain to qualify for the tax credit. You are already meeting that minimum requirement if you are in one of these industries. If you aren't operating in one of these, you might still be experimenting with technology that makes your business better.

It doesn't mean that you are automatically ruled out just because you have an available product. Many companies are still working on R&D. Work that is eligible for the R&D credit can be used to improve your product that is already on the market.

U.S. employees and contractors are the only people who will be eligible. Consider if you're trying to decide between being international or based in the U.S.

What you need to know about the R&D tax credit

It's impossible to innovate without investing in R&D, so the government offers a way to make it less expensive.