Avoid These Common Mistakes When Claiming The R&D Tax Credit

We all love non-dilutive capital, yet far too many teams leave money on the table—or worse, invite an audit—because of avoidable missteps. Here are the pitfalls we see most often when reviewing claims:

1. Treating Everyone with “Engineer” in Their Title as Qualified R&D Only the hours spent on actual experimentation to resolve technical uncertainty count. Administrative meetings and routine maintenance do not.

2. Filing First, Documenting Later The IRS assumes you’re innocent until proven undocumented. Build contemporaneous project files—design iterations, test logs, sprint notes—before you sign Form 6765.

3. Forgetting Contract Research Allocations Paying outside vendors? You may only claim 65 % of that spend unless the contract shifts “substantial rights” back to you. Miss that nuance and your credit shrinks fast.

4. Double-Dipping on Wages Wages already expensed under another incentive (e.g., the Employee Retention Credit) cannot be re-used here. Overlaps trigger clawbacks.

5. Omitting State Credits Thirty-plus states mirror (or enhance) the federal credit. Failing to layer these can leave six figures unclaimed.

6. Missing the Payroll-Tax Election Window Start-ups under $5 M in receipts can offset up to $500 K of payroll tax each year—but only if they elect it on the original return. Amended returns don’t qualify.

7. Filing Under the Wrong Method Switching between the Regular Credit and Alternative Simplified Credit without analyzing which yields the larger benefit can cost 20-30 % of the credit value.

8. “One-Size-Fits-All” Surveys Generic time-tracking surveys applied company-wide rarely stand up to IRS scrutiny. Claims should map tasks to the specific four-part test.

9. Leaving Foreign R&D in the Calculation Only U.S.-incurred qualified research expenses count. Including offshore work inflates the base and flags your return.

Sophic Analytics partners with a team of IP attorneys and engineers who live and breathe this credit. After thousands of filings, we’ve had zero disallowances—because every claim is built to withstand scrutiny from day one.

Ready to turn your R&D spend into cash without the audit anxiety? 

Let’s talk - support@sophicanalytics.com

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