Challenges Mid-Sized Firms Face in Claiming the R&D Tax Credit — And How to Overcome Them
The R&D Tax Credit is one of the most valuable incentives available to U.S. businesses, rewarding innovation and investment in new or improved products, processes, or technologies. Yet, many mid-sized firms miss out on this opportunity—not because they don’t qualify, but because they face unique challenges in identifying, documenting, and claiming the credit.
- Lack of Awareness and Misconceptions
Many mid-sized companies assume R&D credits are reserved for tech giants or startups. In reality, businesses across industries—manufacturing, engineering, software, food production and more—often qualify.
Solution: Educate internal teams about what qualifies as R&D.
- Limited Internal Resources
Unlike large corporations with dedicated tax departments, mid-sized firms often rely on lean finance teams. Tracking qualified research expenses (QREs) and maintaining proper documentation can be overwhelming.
Solution: Implement simple tracking systems and consider outsourcing to R&D tax credit specialists who can streamline the process.
- Documentation Challenges
The IRS requires detailed substantiation of R&D activities. Mid-sized firms may not have formal processes for documenting time spent, project details or technical uncertainties.
Solution: Start small—use project management tools to log activities and time. Encourage engineers and technical staff to maintain brief notes on project goals and challenges.
- Fear of Audit Risk
Some firms avoid claiming the credit due to concerns about triggering an IRS audit or not having “perfect” documentation.
Solution: Work with experienced advisors who understand IRS expectations and can help prepare defensible claims. The key is consistency and reasonable documentation—not perfection.
- Choosing the Right Calculation Method
Form 6765 offers two methods: the Regular Credit and the Alternative Simplified Credit (ASC). Mid-sized firms may struggle to determine which yields the best result.
Solution: Run both calculations annually and choose the optimal method. A tax advisor can help model scenarios and ensure compliance.
Next Steps
Mid-sized firms are engines of innovation—and they deserve to benefit from the R&D tax credit. By addressing these challenges proactively, companies can unlock significant financial value while fueling future growth.
If you’re a mid-sized business wondering whether your activities qualify, now is the time to explore your options. Please contact us for a free eligibility assessment and start maximizing your innovation investments.
