Fewer Than 30% of Eligible Small Businesses Claim the R&D Tax Credit, K-38 Consulting Reports
RALEIGH, N.C. – August 24th, 2026 – One of the most valuable federal tax incentives available to growing businesses is also one of the most consistently overlooked. Industry research shows fewer than 30% of eligible small businesses claim the federal Research and Development (R&D) tax credit, leaving substantial tax savings unclaimed year after year, according to Armanino’s analysis of small business tax credit utilization.
K-38 Consulting, which provides R&D tax credit services alongside its fractional and outsourced CFO offerings, says the gap isn’t due to lack of eligibility — it’s due to a handful of persistent misconceptions that keep otherwise-qualifying businesses from ever filing a claim.
“Most business owners either don’t know the credit exists, or they assume it’s only for large corporations doing lab research,” said Dallas Alford IV, CPA, Founder of K-38 Consulting. “Neither is true. We work with software companies, ecommerce brands, and hardware startups that qualify every year and never knew it.”
Who Actually Qualifies
The R&D tax credit applies to companies developing new or improved products, processes, software, techniques, formulas, or inventions — a far broader definition than most business owners assume. Roughly 45% of companies that claim the federal research credit report annual revenues below $5 million, underscoring that this is not a credit reserved for large enterprises. The credit is effort-based rather than outcome-based: a project does not need to succeed for its underlying research activities to qualify.
Since the 2015 Protecting Americans from Tax Hikes (PATH) Act, the credit has become significantly more accessible to small and midsize businesses, including the ability for qualifying startups to apply the credit against payroll tax liability — a critical benefit for pre-revenue or early-revenue companies with little or no income tax owed. That payroll tax offset cap was later doubled from $250,000 to $500,000 under the Inflation Reduction Act, meaning even startups with no income tax liability can still capture meaningful cash savings.
“This is one of the few tax incentives where a company doesn’t need to be profitable to benefit,” Alford said. “If you’re running payroll and doing qualifying development work, there’s a real chance you’re leaving money that could be funding your next hire or extending your runway.”
Why So Many Businesses Miss Out
K-38 Consulting identifies three recurring reasons eligible businesses fail to claim the credit:
Awareness. Many business owners simply don’t know the credit exists or assume, incorrectly, that it applies only to formal research labs rather than everyday product and engineering work.
Misunderstood eligibility. Founders frequently rule themselves out because their work doesn’t look like traditional “research” — despite the credit covering a wide range of technical problem-solving, including software development, process improvement, and formula or product iteration.
Documentation concerns. Some businesses are aware of the credit but avoid claiming it because they’re unsure how to substantiate qualifying activities, or they fear the process is too complex relative to the potential benefit.
There’s also a state-level gap compounding the issue: most states with an income tax offer their own R&D credit that stacks on top of the federal credit, but businesses that only pursue the federal claim frequently leave state-level credits unclaimed entirely.
Retroactive Claims Are Still on the Table
Businesses that have never claimed the credit are not necessarily out of options. Companies generally have a three-year window to amend prior returns and capture credits they missed the first time around — meaning a business that qualified in past years but never filed a claim may still be able to recover that value today.
“If your last tax bill stung, that number often isn’t final,” Alford said. “For companies doing real product or engineering work, there’s a real possibility they’re owed money they haven’t collected yet — and the retroactive window means past years aren’t necessarily lost.”
What K-38 Consulting Recommends
Based on the gaps it sees most often among startup and midsize business clients, K-38 Consulting recommends the following:
- Don’t rule yourself out based on the word “research.” Everyday software development, product iteration, and process improvement frequently qualify, even without a formal R&D department.
- Evaluate eligibility annually, not just once. Qualifying activity often continues even as a company’s product and engineering priorities shift.
- Check state-level credits alongside the federal claim. Claiming federal only can leave meaningful state-level savings on the table.
- Review the past three years, even if the credit has never been claimed before. Retroactive amendments can capture previously missed value.
- Work with a specialist on documentation. A well-documented R&D study is essential both to maximize the claim and to withstand IRS scrutiny if the return is reviewed.
How K-38 Consulting Helps Businesses Claim What They’re Owed
K-38 Consulting’s R&D tax credit services work alongside its broader outsourced CFO services to help startups and midsize businesses identify qualifying activity, document it properly, and file accurate claims — including retroactive claims for credits missed in prior years. The firm has helped clients across technology, ecommerce, biotech, and hardware secure R&D credits worth up to $250,000 or more, depending on the scale of qualifying activity. This work is part of the firm’s broader tax strategy offering, which pairs tax credit identification with the cash flow and forecasting support startups need to put those savings to work.
“Claiming this credit isn’t just a tax exercise,” Alford said. “For a lot of our clients, it’s real, non-dilutive cash that extends runway or funds the next hire — money they’re already entitled to, sitting unclaimed.”
About K-38 Consulting
K-38 Consulting provides fractional and outsourced CFO services, controller services, and tax strategy — including R&D tax credit and cost segregation services — to startups and midsize businesses across the country. The firm serves clients in SaaS, biotech, healthcare, law, ecommerce, CPG, construction, and real estate, delivering the financial leadership, forecasting tools, and strategic guidance typically available only to companies with a full in-house finance team. K-38 Consulting is headquartered in Raleigh, North Carolina, with clients nationwide.
Media Contact: K-38 Consulting 3809 La Costa Way, Raleigh, NC 27610 (910) 262-4412 [press contact email] https://k38consulting.com
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