Finta Answers: What Every Startup Needs to Know About R&D Tax Credits

If you’re nearing the end of your company’s journey, you’re probably heads-down on a hundred loose ends — and wondering if there’s any relief left in your toolkit. One question we hear a lot is: Can I apply R&D tax credits on my final tax return?

Before we jump to the answer, let’s zoom out and get grounded on what R&D tax credits are and how they actually work. 

We’ve partnered with Finta because they’re simply the best when it comes to making startup finances, especially tax compliance, founder-friendly. Finta helps startup teams track R&D credits, manage books, and stay financially healthy through every stage, from MVP to maturity. Their platform is intuitive, their insights are on point, and their team actually gets what it’s like to be in the founder seat.

Finta customers also get 10% off Starcycle services—because when great platforms team up, founders win.

So if you’re still in the build phase (or thinking about how to optimize things ahead of your next move), this guide is a must-read. Scroll on to dive into the full article from Finta.

Finta’s Guide to R&D Tax Credits

​The Federal R&D tax credit is an IRS tax incentive that rewards innovation in the US. To claim it, a tax preparer needs to conduct a R&D study and include the claim with tax filings.

Startups can get back up to $500,000 for R&D Expenses spent in their first five years.​

Eligibility

If you spent money on qualified R&D expenses in the US, you’re eligible for these tax credits.

R&D Expenses

Eligible expenses must be spent on creating something new or improving an existing product. And it must be spent in the US - international expenses, like foreign contractors, are ineligible.

How R&D Tax Credits Work

Step 1: Determine credit amount

For startups, eligible R&D expenses are typically:

• Gross pay for employees/contractors doing product, engineering, design
• Raw materials for physical prototypes
• Hosting and server costs

Note: You must reasonably estimate and apply a % of time spent on eligible activities.

Include time on:

• scoping, designing, and coding prototypes and new features.

Exclude time on:

• bugs, support, user research, marketing, hiring, fundraising, etc.

Roughly 10% of R&D expenses can be claimed as credits. For example, if you paid an US-based Engineer $100,000 in salaries last year, then you can claim $10,000.

To get a more accurate estimate, see sample calculator on the Finta website.

Step 2: Claim the credit

Your tax preparer will add the R&D tax credit amount to your annual tax return. If the IRS has no issues, the credit is approved. But this is not money back yet.

Like a store credit with the IRS - it’s not cash, but it can be applied to future purchases.

Step 3: Get the money

There are two approaches. Every year you must pick one.

Option A: Reduce income taxes amount

If profitable, the amount of taxes owed can be reduced from existing credits.

For example, say you owe $1,000 in taxes and have $5,000 of credits, then you can reduce taxes owed to $0 and still have $4,000 credits remaining.

Most startups are unprofitable with no taxes owed. So this approach is uncommon.

Like using your existing store credit to reduce what you have to pay the IRS.

Option B: Get a refund for future payroll taxes

As you run payroll for salaried employees, you need to pay payroll taxes to the IRS.

The IRS will issue a refund to you via mailed checks for those payroll taxes every quarter until all credits are utilized.

For example, say you claimed $5,000 of tax credits from taxes filed in March. Then in Q2 (April-June), you paid $1,000 in payroll taxes. Your payroll provider will submit this refund claim to the IRS, and you’ll receive a physical check from them in 10–12 weeks. This continues every quarter until the full $5,000 is claimed.

PEO payroll providers typically cause the refund process to take much longer because they claim all of their customers’ refunds under the same PEO legal entity.

Most startups are unprofitable with payroll expenses. So this approach is common. Like paying the IRS then asking to get a refund using existing store credits.

Since this approach is a cash refund, it’s limited to companies that incorporated within the last 5 years, have ≤$5M in revenue for the tax year, and ≤$500K in credits to claim.

Curious what your R&D tax credit could be?

Use Finta’s R&D Credit Calculator to get a quick estimate. Understanding your runway starts with understanding your returns.

Can I apply R&D tax credits on my final return?

Short answer at the end (as promised): generally, no.

R&D credits are designed to reduce what you owe in the future, either on future income taxes or through refunds of future payroll taxes. Think of it like store credit: the shop gives you credit because they expect you’ll come back to buy something later. If you’re filing your final return, there’s no “next visit”, so no next return or future payroll to apply that credit to.