This AIM Financial blog covers IRS Form 6765: Credit for Increasing Research Activities, commonly called the federal research and development (R&D) tax credit. Eligible businesses may be able to claim a credit for qualifying research expenses, but ordinary product development, routine testing, and work performed outside the United States do not automatically qualify. The IRS also updated Form 6765 reporting requirements for tax years beginning in 2026, so businesses should use the instructions that apply to their tax year.

From AIM Financial — Business Tax Preparation in Grand Rapids, Kentwood, Wyoming, and West Michigan

Does your business develop new products, improve manufacturing processes, create software, or solve technical problems? You may be overlooking a federal tax incentive known as the Credit for Increasing Research Activities, commonly called the research and development (R&D) tax credit.

IRS Form 6765 is used to calculate and claim this credit. Eligible businesses may receive a tax benefit for qualifying research activities, but the rules require careful documentation and a clear understanding of which expenses qualify.

For businesses in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan, AIM Financial can help explain the basic requirements and organize the records needed for tax preparation.

What Is IRS Form 6765?

IRS Form 6765, Credit for Increasing Research Activities, is used to calculate the federal research credit. It also allows eligible taxpayers to make certain elections, including an election to claim part of the credit against qualifying employer payroll taxes.

The credit is designed to encourage businesses to conduct qualifying research and development. It may apply to companies in manufacturing, technology, engineering, software development, and other industries.

A business does not necessarily need a laboratory or a formal research department to qualify. However, simply developing a product or improving a business process is not enough. The activities must meet the tax law’s specific requirements.

Official IRS information is available at https://www.irs.gov/forms-pubs/about-form-6765.

What Activities May Qualify for the R&D Tax Credit?

The IRS generally applies a four-part test to determine whether activities qualify as research.

1. The work must have a permitted purpose.

The research must relate to developing a new or improved business component, such as a product, process, technique, formula, invention, or qualifying software. Improvements may involve functionality, performance, reliability, or quality.

2. The work must be technological in nature.

The activity must fundamentally rely on principles of physical or biological science, engineering, or computer science.

3. There must be technical uncertainty.

The business must be seeking to discover information that resolves uncertainty about the appropriate design, capability, or method for developing or improving the business component.

4. The work must involve a process of experimentation.

The business must evaluate alternatives through a systematic process, which may involve modeling, testing, simulation, trial production, or other appropriate methods.

These requirements are generally applied separately to each business component. A business should document what it was trying to achieve, what technical uncertainty existed, and how it evaluated possible solutions.

Examples of Potentially Qualifying Business Activities

Depending on the facts, examples may include:

• A manufacturer testing different materials to improve product durability.
• An engineering firm evaluating alternative designs to meet demanding performance specifications.
• A software company developing new functionality that requires resolving technical uncertainties.
• A food manufacturer experimenting with formulations to improve product stability.
• A machine shop designing and testing a new production process to achieve greater precision.

Not every activity in these industries qualifies. Routine quality control, ordinary data collection, aesthetic changes, duplication of an existing product, and adaptation of an existing product to a particular customer’s needs may be excluded.

Research conducted outside the United States and certain funded research activities are also generally excluded under the applicable rules. <Cite refs={[“turn363121search0″,”turn363121search2”]}/>

Which Expenses May Count?

Qualified research expenses, often called QREs, generally include eligible in-house research wages, supplies used in qualified research, and certain contract research expenses.

Employee wages: Compensation for employees performing, directly supervising, or directly supporting qualified research may qualify under the applicable rules. Not every employee’s full salary automatically qualifies.

Research supplies: Certain tangible supplies used in qualified research may be eligible. General overhead, land, depreciable property, and other excluded costs do not automatically qualify.

Contract research: A portion of payments to outside contractors for qualifying research may count. The rules generally limit the eligible portion of these expenses, and special percentages may apply to particular types of research arrangements.

Businesses need to calculate qualified research expenses carefully and maintain records supporting the amount claimed.

How Do You Complete IRS Form 6765?

The exact process depends on the tax year and the business’s circumstances.

Step 1: Identify qualifying research projects. List the products, processes, software, or other business components involved in the research.

Step 2: Gather supporting records. Collect project descriptions, employee time records, payroll reports, invoices, testing results, technical notes, and contractor agreements.

Step 3: Calculate qualified research expenses. Identify eligible wages, supplies, and contract research costs. Exclude costs that do not meet the requirements.

Step 4: Complete the applicable sections. Form 6765 contains sections for calculating the credit, reporting qualified research expenses, and providing additional information. The requirements vary by tax year and taxpayer.

Step 5: Review available elections. Businesses may need to consider the reduced-credit election under Section 280C. Certain qualified small businesses may also elect to use a portion of the credit against eligible employer payroll taxes.

Step 6: Transfer the credit to the appropriate return. The reporting process depends on the entity type and applicable filing instructions. Partnerships and S corporations generally file Form 6765 to claim the credit, while certain other taxpayers receiving the credit solely through a pass-through entity may report it directly on Form 3800.

Important Changes for 2025 and 2026

Federal tax law enacted in 2025 changed the treatment of domestic research and experimental expenditures and updated Form 6765 reporting requirements.

For eligible domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024, new Section 174A generally allows a current deduction, subject to applicable rules and elections. Special transition provisions may apply to qualifying research costs incurred in earlier years.

Separately, the IRS instructions provide that Section G, Business Component Information, is optional for tax years beginning before 2026, but generally required for tax years beginning after 2025, subject to specified exceptions.

Businesses should not assume that the rules for a 2025 return are identical to those for a 2026 return. Review the applicable Form 6765 instructions and the treatment of research expenses together when planning the return. <Cite refs={[“turn363121search1″,”turn363121search17”]}/>

What Records Should Your Business Keep?

Maintain records that substantiate both the research activity and the claimed expenses, including:

• Project plans and descriptions of technical challenges.
• Design documents, test results, prototypes, and development notes.
• Employee job descriptions and time-tracking records.
• Payroll reports and wage calculations.
• Supply receipts and research-related invoices.
• Contractor agreements and documentation of the work performed.
• Calculations showing how the credit was determined.
• Prior-year research credit forms and supporting schedules.

If you claim the credit on an amended return, additional information may be required for the IRS to treat the research credit refund claim as valid.

How AIM Financial Can Help With Business Tax Preparation

Research tax credits can be valuable, but eligibility is technical. Poor documentation, incorrectly classified expenses, or an incomplete calculation can create problems when filing a return.

AIM Financial helps businesses in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan prepare tax returns and organize the records needed to report business tax items accurately.

If your company develops products, improves processes, or performs software or engineering work, consider reviewing your activities and records to determine whether a research credit evaluation may be worthwhile.

Contact AIM Financial for business tax preparation assistance. Bring your project records, payroll information, research invoices, and prior-year tax returns so the relevant tax reporting requirements can be reviewed.

For official details, visit https://www.irs.gov/instructions/i6765.

This article is for general educational purposes only and is not individualized tax advice. Eligibility depends on the research activities, expenses, business structure, and tax year involved.