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description=Federal research & development (R&D) tax credits continue to be one of the most powerful incentives available to businesses investing in innovation. Companies that develop or improve products, processes, software, or technologies may be able to access valuable tax credits that can help lower tax burden and provide non-dilutive capital.In 2026, state-level R&D tax credits remain just as important. Many U.S. states offer their own tax credits—each with its own rules, benefits, and opportunities. When leveraged strategically, these state incentives can help unlock additional cash flow, strengthen your innovation pipeline, and enhance the ROI of your R&D activities.Join us for an informative session in conjunction with Arvo, where we’ll break down what businesses need to know about 2026 federal and state R&D tax credit opportunities, including:The benefits of leveraging federal and state R&D tax credits to support growth and innovationWhich states offer R&D tax credits in 2026 and how their rules, requirements, and incentives differHow to claim, optimize, and monetize state-specific tax credits, including practical steps and compliance considerationsCommon pitfalls and changes to be aware of for the 2026 tax year;

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nvolved retroactive benefits so we ll spend time on that and then we ll talk about strategy compliance and best practices and leave some time for any q and a at the end so with that we ll go ahead and get introductions my name is emily osborne i m the director of sales and marketing here at arvo been with the company for just coming up on four years now helped the sales team and the marketing team get the word out about these tax credits to small and medium businesses so excited to be part of the webinar today my name is monica diehl i m the vp of tax and operations for arvo i work with the team of cpas and tax professionals we work directly with clients to help them maximize their r and d credits and make sure we ve created some good solid documentation to back up those claims great and we ll get into very quickly who is arvo like i mentioned we ve partnered with trinet for quite a while now our goal is to bring the r and d tax credit to trinet customers whether they re small medium or enterprise and we ll focus today on the small to medium sized businesses arvo has been around since 2014 we were founded in tax credits and we ve recently added bookkeeping and tax planning to our offering with the goal of just helping small and medium businesses understand their finances and figure out where there might be gaps and where they can fill those with tax credits and a little more about arvo by the numbers so since our founding we ve served over 2 000 clients we ve helped identify over 600 000 000 in r and d tax credit i think that s closer to 700 000 000 now that we re coming to the end of the year here in december but since we ve acquired the 700 000 000 we ve had zero of those credits disallowed so there might be some other r and d vendors out there but arvo is very proud of the fact that with all of the credits we ve gotten for our clients zero of them have been disallowed by the government which we ll get into a little bit more on how our r and d credits are very defensible but just a little overview on arvo before we get into r and d so with that we will kind of go into a little bit of background on r and d some of you might be very familiar with r and d some of you this might be your first time so learning about the credit so we wanna make sure that we cover all the bases r and d has been around for forty five years it was created in 1981 the purpose of the r and d tax credit is to encourage innovation by us companies using us workers this was a time when offshoring began and we may have been losing some of our innovation our companies or our workers to companies that were overseas so r and d was created to encourage companies to stay here and also to hire domestic workers there are some changes that have happened since the founding of r and d in 1981 in 2015 the path act was passed this allowed companies to use the r and d tax credit to offset their payroll tax prior to that you could only use the r and d credit to offset your income tax liability this was a big deal because when you hear innovation you might think of startups startups normally do not have income tax liability so this allowed startups within the united states who may be pre revenue or do not have any income tax liability to use the credit to offset their payroll taxes so that was a big change that happened in 2015 and it widened the tax credit significantly in 2017 the tax cuts and jobs act required amortization of research expenses monica will get into exactly what that means long story short here in the overview it made it a little more cumbersome to take advantage of the r and d credit that was from the tax cuts and jobs act in 2017 and the requirements of that went into effect in 2021 so start or 2022 so starting in twenty two you had to amortize all of your research expenses over five years there were some companies that decided it just didn t make sense to take advantage of the r and d tax credit any longer once that went into effect arvo as an r and d tax credit vendor definitely saw a dip in some of our clients because it just didn t make sense to spend all that time on amortization when the return wasn t as high there was some great news that came recently from the big beautiful bill that restored immediate expenses expensing and created retroactive opportunities to recover deductions basically it removes the requirements from the tax cuts and jobs act so starting when the big beautiful bill was signed in july you were then able to begin immediately expensing which is why we re having this webinar wanting to educate our partners and their users that there has been changes to the r and d tax credit and those changes are very positive and can result in an end business user actually getting more credit than they would have the last three years so that s a quick recap on the r and d credit and some of the exciting changes that have happened just in the last few months now the next part would be great the rd credit exists there s some positive news around it what do we do as far as figuring out if we qualify so figuring out if we qualify leans on the four part test this is the four part test that the government uses to determine if a project is r and d eligible and considered a qualifying project so the part one is permitted purpose was your company or your entity improving the functionality reliability performance or quality of a product process software formula or technique so are you creating something new are you improving something that already exists that is step one in answering the question of the four part test think in software if you re creating a new software manufacturing maybe you re creating something that simply hasn t existed before pharmaceuticals you re creating a new drug or improving upon a past drug those are all eligible under the permitted purpose the second and third part of the test is elimination of uncertainty and then process of experimentation so elimination of uncertainty is basically proving that you were not sure in the beginning if this new product process or software for example would react the way that you wanted to at the end of your experimentation so that lends to three process of experimentation you have a hypothesis now you re testing if this new product or process that you re building will actually result in the creation or result in the expectation that you were looking for so are you running scientific method trial and error are you evaluating alternatives or develop testing hypothesis are you doing q and a for a software for example and then are you evaluating the results and how are you documenting that process and then that goes back to eliminating the uncertainty of the overall process itself so those are the top three the fourth is the easiest normally to identify it must be technological in nature so it must rely on physical science engineering biological or computer science in order for it to be eligible or considered a qualifying project for r and d so if you re looking at a business you want to just quickly to understand if there s potential eligibility there you would look at permitted purpose elimination of uncertainty process of experimentation and then technological in nature so we covered how you might be eligible part of our roles here is determine eligibility and then actually help calculate the credit so how much could you claim so we ll stick with the software example say you re a small software startup now we re looking at qualified research expenditures the best way to think about this is how are these expenses tied directly to the qualifying project that we just qualified through the four part test so this is broken out into three buckets bucket one is wages this is normally the largest component that we see think engineers programmers product managers product owners anyone that s actively working on the qualifying project their wages are eligible to become qualified research expenditures and these are w two box one wages that we re looking at and the other caveat is that these individuals must be completing the work in the us so if you have employees that are abroad their wages would not be eligible the second box would be contracting so if you re contracting out to a ten ninety nine or you re using an outsourced vendor to help with development for example that is also eligible as a qre it does take a little bit of a haircut there 65 of the contract research expenses are eligible as you ll see a theme here the contractors must also be us based in order to be eligible to become a qre and then the third is supplies think of this as anything that s generally consumed or destroyed during the process in software it could be some cloud based services like azure or aws in pharmaceuticals it could be the physical chemicals that are used in the process of experimentation so part of what our team does is evaluating the supplies to see what is eligible as a qre then you tie all of those together so you have your wages your contracting expenses and your supplies and you re getting around seven to 10 of your qres equals your credit to make that a little clearer we have this example so this is a client of ours it s a quick view of a case study so they had just over 1 000 000 in wages they had 41 000 contract expenses and 24 000 in supplies for a total r and d spend of just over 1 100 000 0 quick back of the napkin estimate there is 10 of that would be 116 715 so if you wanted to quickly look at a business you would wanna look at those three buckets wages contracting and supplies and then apply the seven to 10 estimate there and that is a quick estimate that you could do to determine the amount of credit that you might receive based on your qres now the next is we re qualified we know how much credit we re going to get back how do we monetize the credit there are two ways i touched on this a little bit in the timeline but there are two ways to monetize the credit the first is against your payroll tax and think of this the way to think of these is if you have income tax liability you ll use r and d against your income tax liability if you do not then you would be eligible to use it against your payroll tax liability now there are some stipulations on the payroll side most of the time when we think of this we think of a startup or a small business they have to be within the first five years of any gross receipts so that normally falls within the startup range they have less than 5 000 000 in gross receipts for the current tax year and then it can be claimed up to five times against the business s payroll tax liability so it s the rule of fives it s a quick way to remember it but that is what was available starting in 2015 when they expanded the tax credit on the payroll side it must be used or utilized on an on time original return what that means for example if you are to file an on time return in april of the beginning of a new year then you would need to file for your payroll taxes on time for the income you can amend past returns which i ll switch over to the income now so income using it against your income tax liability there are little to no restrictions no restrictions on gross receipts it can be claimed on an amended return so it doesn t have to be included immediately on your on time return you can go back and amend right now you can go back to the year of 2022 amend 22 23 24 to include the or utilize or monetize the r and d tax credit against your income tax liability and on the income side there s no limit to how many times a business can claim the credit now another important note is that it can be rolled or carried forward for up to twenty years so one way to think of the r and d tax credit is you re accumulating it you have the opportunity to use it against your income tax liability in the current year or you could let it sit in an r and d bank account and let it roll forward for up to twenty years some clients may do this if they re expecting to have a large income tax liability in a coming year and they want to save up their r and d credit to utilize against that so if you re looking at your business do i have income tax liability if not do i have payroll tax liability those are the two options to monetize the credit and with that i will hand it over to monica to talk about defensibility great thank you emily so when we re working with clients we usually get a lot of concerns around defensibility what if i claim an r and d credit is the irs going to come and audit us if our business has never claimed an r and d credit before and we decide to claim the credit does that open us up to audits what i can say there is the irs doesn t tell us exactly how they select people for audits for obvious reasons but we do not see a direct connection between claiming an r and d credit and being audited but our concern along with the client s concern is defensibility i mentioned before that what we do is we focus on kind of maximizing credits for clients and creating good solid documentation for them so that their credits are supported when a business claims an r and d credit they re basically saying that they have understood the requirements in the tax code some of the requirements that emily just went through on what types of expenses what types of activities are eligible for the credit you understand those requirements and you have determined that your business does meet all those requirements and so it s important to have a good solid study the documentation is actually a requirement when the taxpayer claims an r and d credit but you want to have a good solid study to document how you meet all those requirements and how the expenses that you claim for your r and d credit are eligible and so that s what our goal is as well with working with clients and going through and kind of creating their r and d study is to make sure we have good solid documentation for them and what we ve done is in our study lay out different components of the r and d credit that an auditor would be particularly concerned with and we try to lay them out in a very clear format so that in the event of an audit hopefully the auditor would come in they would take a look they d be able to see the information that they need and it would be evident to them that the business qualifies so to start we re looking at the business component that s kind of describing the particular activity the particular product or activity the business was involved with and so that s going to be clearly defined in our study we re going to look at the qualifying activities for the business and how those activities meet the requirements in the four part test we re going to capture the qualified expenses that are supporting the qualifying activities and the process of experimentation that the business followed and then in our calculation section we re going to lay out for the business the calculation how it was done under both of the eligible met...