GEN has been active this summer providing opportunities for mentoring, investment and undiluted cash through some of our competitions. As a non-profit we remain committed helping the founders in our community.
As many know, the new tax bill has been in the headlines in the United States, but there has been little coverage of how it impacts startups, especially given that the new tax code is allowing a massive increase in tax credits. The new tax code hugely expands the R&D tax credit and does not necessarily involve a world-changing invention. You would be surprised to see what now counts as an R&D tax credit, including:
- Building or improving custom software
- Developing internal tools to improve business processes
- Creating new products, materials, or formulations
- Enhancing manufacturing or operational processes
- Experimenting with system integrations or tech stack upgrades
- Building smart contracts, APIs, or SaaS tools
In short, this applies to anyone who recently launched a business or startup, but it can also apply to any normal business.
Here are the updates:
1. The R&D tax credit now allows immediate expensing.
This means that you can obtain the tax credit for US based development expenses - this includes software costs, labor, etc. What about non-US based labor, such as offshore developers or talent? This still applies! However, you will need to amortize.
2. This is not just for biotech or large tech corporations, but now startups.
If you’re a small business developing new systems, improving code, testing prototypes, designing algorithms, or even refining internal tools, you may qualify. The key is whether the work involved technical uncertainty and experimentation.
3. You can use the credit even if you’re not yet profitable.
Startup? No problem. You can use the credit to offset payroll taxes up to $500,000 per year, even if your company is still pre-revenue or not yet showing net income.
4. This is one of the only refundable credits for small businesses.
Most business credits reduce tax only if you're already profitable. The R&D credit is one of the few that lets you get cash back via payroll tax offset, which is huge for bootstrapped teams or early-stage ventures.
As it is not automatic, you must file for it properly since the IRS now requires detailed support, including project descriptions, costs, and documentation showing your process. If you think you might want to claim the credit for 2025, be sure to reach out to your tax advisor now – or if you do not have one, we can recommend who we use at GEN, along with other very affordable and reliable recommendations.