Tax Credits You Might Be Missing This Filing Season

At Froehling Anderson, our team of accountants and advisors helps businesses identify the tax credits they qualify for and maximize the benefits available to them.

Our role as a trusted partner is to ensure you’re not leaving money on the table. Below are some of the most overlooked tax credits business owners miss each filing season, and how our team of professionals can help.

One of the most significant tax credits businesses overlook is the Research and Development (R&D) Tax Credit. Despite the name, this credit isn’t limited to scientists in lab coats. Businesses in manufacturing, engineering, technology, software development, food production, and more often qualify without realizing it.

Under current federal law, the R&D credit remains one of the largest domestic tax incentives available to U.S. businesses, making it especially important to evaluate each year.

Why It Matters

The R&D tax credit provides:

• A dollar-for-dollar reduction in income tax liability
• The ability to immediately expense domestic R&D expenditures
• A powerful way to reinvest savings back into product development, innovation, and operational improvements

A Four-Part Test**

Before a business can claim the R&D credit, it must meet the IRS’s four-part definition of “qualified research.” At Froehling Anderson, we walk clients through each requirement to determine whether a formal R&D study is worth pursuing. Many of these studies are completed through our specialized partner, McGuire Sponsel, ensuring accuracy and compliance.

Here’s what we evaluate:

1. Section 174A Test

Your research expenditures must qualify as R&D activities performed within the U.S. in an experimental or laboratory sense.

2. Technological Information Test

The research must be rooted in hard sciences such as engineering, physics, biology, or computer science, and aimed at discovering technological information.

3. Process of Experimentation Test

The activities must involve evaluating multiple alternatives, models, or hypotheses to develop or improve a product, process, or component.

4. Business Component Test

The research must relate to a product, process, technique, formula, invention, or software intended for sale, lease, license, or internal use. If the research doesn’t qualify at the product level, a “shrinking-back” rule allows testing at smaller subsets.

The IRS excludes certain activities from the R&D credit, including:

• Research after commercial production begins
• Adaptation of existing products
• Replicating existing business components
• Routine quality testing, surveys, and data collection
• Research conducted outside the U.S.
• Research funded by another entity

This is where working with an experienced CPA firm is essential; misclassifying activities can delay refunds or create compliance issues.

The R&D credit (claimed on Form 6765) generally equals:

• 20% of qualified expenses above a calculated base amount
• A university basic research credit (20% of qualifying payments)
• 20% of payments to energy research consortia

For startups, special rules apply to determine base percentages during the first 10 years of qualified research.

Because the credit interacts with Section 174A, gross receipts, and historical QREs (Qualified Research Expenses), getting the calculation right requires thoughtful analysis, not guesswork.

(And The Cost of Getting It Right)**

An R&D study is often necessary to substantiate the credit, and it can vary widely based on the complexity of your projects. According to industry research (Acena Consulting):

R&D studies typically cost between $5,000 and $50,000, depending on:

• Number and complexity of projects
• Internal-use software development
• Number of employees involved
• Documentation requirements
• Other tax considerations

While this is an additional investment, the credit generated often provides a meaningful return; many clients recoup significantly more than the study cost.

Even sophisticated companies overlook the R&D credit because:

• The IRS definition of “research” is broader than most expect
• Documentation requirements can feel overwhelming
• The credit calculation is complex
• Businesses don’t realize everyday improvements count, such as tooling changes, workflow improvements, and prototype development all may qualify

Our team helps simplify the process. We work alongside your internal staff to understand your processes, identify qualifying activities, and coordinate third-party specialists when needed.

Our goal is simple: Make the R&D credit accessible, accurate, and advantageous for you.

While the R&D credit is often the biggest missed opportunity, there are several others Minnesota business owners should revisit each filing season:

Work Opportunity Tax Credit (WOTC)

A federal credit for hiring individuals from targeted groups, such as veterans or long-term unemployed workers.

Energy-Related Credits

Including credits for energy-efficient buildings, solar installations, and certain electrification initiatives.

Employer-Provided Childcare Credit

For businesses offering childcare resources or facilities to employees.

New or Updated Credits Under Federal Legislation

Frequent updates, such as those proposed under OBBBA, may introduce new opportunities or expand existing credits.

Every year brings new rules, thresholds, and incentives. Whether you’re reviewing last year’s tax strategy or planning for the next, these credits should be part of your conversation with your CPA.

As a CPA firm located in Minneapolis and St. Cloud, Minnesota, we understand the industries and communities we serve. Our team combines deep tax knowledge with a hands-on, client-centric approach:

• Minnesota expertise: We know the unique opportunities and nuances that affect local businesses.
• Clear communication: We translate tax law into practical steps, so you feel confident, not overwhelmed.
• Thorough credit evaluation: We assess your eligibility before recommending an R&D study or additional investment.
• Partnership mindset: We help you plan tax-efficient strategies year-round, not just during filing season.

When it comes to tax credits, you shouldn’t have to wonder whether you’re missing out. Our advisors ensure you have every opportunity to strengthen your financial position.

If you think your business may qualify for the R&D credit, or if you simply want to be sure you’re maximizing this year’s tax savings, our team is here to help.

Connect with Froehling Anderson today for a personalized review.

• Instructions for Form 6765 (01/2025) | Internal Revenue Service

Disclaimer: This content is for informational purposes only and does not constitute legal, tax, or audit advice. Please consult with your CPA for guidance tailored to your situation.