RISE AND DON

For educational, informational, and entertainment purposes only. This is not tax, legal, or financial advice. Don Kilam and DK’s Private Business Circle are not licensed tax professionals, attorneys, or CPAs. Tax law changes and individual circumstances vary; always confirm eligibility, computations, and filings with a qualified tax professional before acting. Nothing here guarantees a credit, refund, or outcome. Meet every filing obligation.

Rich Risings, Royal Family 👑

The check I am about to describe to you is real, it is drawn on the United States Treasury, and the vast majority of the people who earned it never cash it.

The government runs a standing offer. It is written into the tax code, it has been on the books for decades, and it says in plain English: if you spend money trying to build something new or make something better, we will pay you back. Not a deduction. Not a discount. A credit — dollar for dollar, off the top.

And because it is retroactive, you can reach back and pull the last three years of it forward in a single motion. That is the check sitting in the mailbox you never opened.

This is Don Kilam’s R&D Tax Credit Master Book, the class in print — with one spine running through it: your qualified tax professional verifies and executes every number.

WHY ALMOST NOBODY CASHES IT

Roughly seventy percent of the businesses that qualify never file for this credit. Not because they are disqualified. Because they misunderstand it.

1. The name scares them. “Research and development” sounds like pharmaceuticals and defense contractors. Owners hear it and self-reject. The code does not require a laboratory. It requires uncertainty, technology, and a process of experimentation — covered below.
2. They think it is only for tech giants. Breweries qualify. Farmers qualify. Contractors qualify. Software shops, manufacturers, logistics companies — no industry is automatically disqualified. If even 10 or 20 percent of your business is spent improving products, processes, or systems, that slice qualifies. Think of the brewery running hop-experiment batches before the canned run hits the shelves, or the farmer testing irrigation timing and packaging methods to find what survives shipping. That is experimentation.
3. They think it costs too much to claim. The paperwork is four forms and a file you should be keeping anyway.

Understand the psychology of the Treasury on this one. This is not a loophole. It is an incentive. Congress wrote this credit to motivate companies to spend money on innovation — because innovation leads to jobs, spending, and growth. The government is purchasing the behavior it wants. When you claim this credit, you are doing exactly what the law was written to reward. When the house offers you money to build, take the money and build.

DEDUCTION VERSUS CREDIT — THE MONEY LESSON

A deduction reduces the income that is subject to tax. A credit reduces the tax itself, dollar for dollar.

Run the numbers: deduct qualifying spend and you save your bracket percentage of it. Earn the credit on top and you cut the bill again — the same dollars working twice. By common practice in the field, a strong federal claim recovers roughly 10–15% of qualifying spend; stack strong state credits and the total can reach 25–35% or more. Your tax professional runs the exact arithmetic for your bracket and facts.

THE THREE PIECES OF THE CHECK

The payroll side. A qualified small business can elect up to $500,000 per year of the credit against the employer portion of Social Security tax. You do not need income tax liability to use it. It comes back quarter by quarter.

The income-tax side. The rest of the credit reduces income tax dollar for dollar, and carries forward for up to 20 years if you cannot use it all this year.

The deduction side. Domestic research expenses can be fully deducted in the year incurred. The deduction lowers the income that is taxed; the credit then cuts the tax that is owed. Deduction first, credit second — the same dollars work twice. There is an election that coordinates the two, and your tax professional makes it deliberately: take the reduced credit and keep the full deduction, or take the full credit and adjust the deduction. Compute both paths; elect one, cleanly.

Stack them, repeat them every year, reach back three years retroactively — and the pieces assemble into what I call the secret check.

THE FOUR-PART TEST

One test, four gates. Pass all four and the expenses behind the activity are qualified research expenses.

Gate 1 — Permitted purpose. The activity develops or improves a business component — a product, process, formula, technique, software, invention, or a new or improved feature.

Gate 2 — Technological in nature. The work rests on a hard science: engineering, physics, chemistry, biology, or computer science. Before you say “I’m not a science company”: if you want better reporting, a better inventory system, or an automated process and there is no off-the-shelf product you can buy, so you build a custom solution — computer code, algorithms, and testing are now involved whether you realized it or not. That is technological in nature. You do not have to be a tech company. The work just has to lean on real science.

Gate 3 — Elimination of uncertainty. You were unsure whether or how you would achieve the result. Failed attempts count as evidence, not shame — the failed database designs are proof of the uncertainty.

Gate 4 — Process of experimentation. You evaluated alternatives: modeled, tested, iterated, measured. Three architectures tested and one abandoned is exactly what this gate wants to see.

The one-sentence test: if any portion of your business is spent trying to improve, you are spending money on it, you are not exactly sure how it will work out, and you are putting hours, supplies, or equipment behind it — earmark that activity. That is your claim.

KNOW THE QUALIFIED EXPENSE CATEGORIES

Qualified research expenses generally fall into defined categories. Your tax professional should match each cost to the qualifying work and the applicable tax rules.

• Wages for qualified services — three buckets: direct research (the person performing the work), direct supervision (the first-line supervisor overseeing and approving it), and direct support (QA, testing, validation). The developer writing the code, the lead reviewing it, the tester validating it — all three wage buckets are in play. Never double-count wages you used for another credit.
• Supplies consumed in research — the hops in the test batches, the scrapped prototype parts. General overhead and depreciable property do not qualify.
• Contract research — the 65/75/100 rules. 65% of time-and-materials payments, 75% of qualified consortium research, and 100% where you retain substantial rights in the results (the research is performed for you, and you bear the risk of failure) or fund qualified energy research through a university or federal lab. The 65% versus 100% classification is worth 35 points on every contract-research dollar — get the agreements right.
• Rental or lease of computers — cloud servers and leased compute used strictly for staging, testing, development, and simulations. Not production hosting, not general corporate IT.

And know the exclusion list cold: research after commercial production begins, surveys and studies, research outside the United States, social sciences, arts, and humanities, research funded by another person or a government grant, advertising after launch, and routine quality control. Claim an exclusion and you burn credibility on the whole file.

BUILD A FILE THAT SUPPORTS THE CLAIM

You own the claim. Your company owns the responsibility to substantiate it. Gather records while the work is fresh.

Organize:

1. A project list mapped to business components.
2. A clear description of technical uncertainty and the intended improvement.
3. Testing notes, alternatives considered, and results.
4. Employee time records or a consistent allocation method.
5. Payroll reports tied to research roles and services.
6. Supply invoices and computer-use records tied to projects.
7. Contract research agreements, invoices, and documentation of the work performed.

For software and product development, preserve project tickets, version histories, test results, quality reviews, and release notes where available. Good records tell a coherent story: what the team worked on, why the outcome was uncertain, how it tested possible solutions, and what qualified expenses were incurred.

Vague estimates are not a substitute for support — the metadata trail exists, so use it: commits, pull requests, code reviews, QA results, tickets, releases. Where better source data exist, broad estimates and retroactive interviews become harder to defend. The evidence already exists — capture it, organize it, and let it defend the claim.

THE STRUCTURE THAT OWNS THE RESEARCH

Three layers.

Layer one: the operating company — the entity doing the work, paying the wages, buying the supplies, hiring the contractors. That is where the qualified expenses live and where the research physically happens.

Layer two: the holding company as single member of the operating company — it owns the operating entity and the assets.

Layer three: the family trust sitting above as the estate container.

The credit is claimed by the taxpayer who incurred the expenses — you cannot hand it to an unrelated party like a contract. The lawful pathways to move its value are pass-through entities and controlled groups, with allocations spelled out in the operating agreement and reflected in capital accounts. Get qualified professionals to set the structure before you claim, and keep the roles distinct and the books separate.

THE RETROACTIVE HARVEST

Before you scale forward, reach back. The credit is retroactive — open prior years can be claimed and amended, and the first move in most engagements is the lookback: gather the prior three years of records and pull the unused credit forward in a single motion.

Then scale forward:

1. Elect to the payroll ceiling every year. If you qualify, take the full election while the five-year window is open — the clock is unforgiving; when the window closes, the payroll path closes with it.
2. Classify contract research correctly where the facts support it — the difference between the 65% and 100% classifications is real money on every contract dollar.
3. Grow the wage categories deliberately. Direct research, direct supervision, direct support: hire and role-title with the three buckets in mind.

Every number here gets executed by your tax professional: eligibility confirmed, computations checked, elections made once, filings made on time. The code wrote the offer; the paperwork collects it; the professional keeps it audit-proof.

THE FORM CHAIN

Form 6765 computes the credit. Section A is the classic computation — up to 20% of the excess over a fixed base built from history. Section B is the alternative simplified credit — 14% of qualified expenses above half your three-year average, and it needs no 1980s history, which is why most modern small businesses land there. First-time claimants with no prior history can even reach the 6% flat path. Compute both in your planning file; file the one your history supports, and note that an election generally sticks — you do not pick the winner at filing time.

The 280C election decides deduction versus credit. Take the full credit and you adjust your research deduction. Elect the reduced credit — about 79% under Section B — and keep the full deduction. Run both arithmetic paths; the winner depends on bracket, not preference. Your tax professional makes the election once, cleanly, and attaches what the instructions require.

Form 8974 is the payroll-tax offset — the engine of the check. It matches your elected credit against the employer share of Social Security and Medicare tax, quarter by quarter, and lands on line 11a of your quarterly payroll return. Two golden rules: the floor is zero — the credit can erase payroll tax but never go below it — and carryforward is your friend; anything you cannot use this quarter rides to the next one. The timing rule that trips people: you cannot apply the credit to a period whose income tax return has not been filed yet.

The general business credit form consolidates the income-tax side. Dozens of credits meet one limitation, your R&D credit rides that form to your return, and unused credit carries forward. It exists because the code contains dozens of separate credits and each one cannot simply bypass your liability.

Your quarterly payroll return is the delivery vehicle. You already file it four times a year. The credit rides it. When your deposits exceed the credit-reduced liability, the quarter closes with the Treasury sending money back.

The form chain is real and the deadlines are real — your tax professional runs eligibility, dates, and elections, and files everything on time. Rules and reporting requirements change by tax year, so the professional confirms the current-year instructions before anything is filed.

PUT YOUR TAX PROFESSIONAL IN THE DRIVER’S SEAT

The opportunity starts with the work your business performed. The claim depends on whether that work meets the tests, whether the expenses qualify, and whether the filing is complete and timely.

Bring your project records, payroll support, invoices, and prior filings to a qualified tax professional. Ask them to confirm eligibility, compare the calculation methods, review the elections, and make every required filing. If earlier years may qualify, ask the professional to evaluate the deadlines and documentation before amending.

Prosperity is your divine birthright — and the Treasury already agreed to fund the building part. Keep the records. Verify the numbers. File correctly. Let’s go cash the check.

The class walks every line of every form with real filed examples and the fill-in worksheets — the four-part test worksheet, the qualified expense worksheet, the form walkthroughs, the cover letter.

Text “TAX CLASS” to 702-200-4900 to learn more.

Text “TAX CLASS” to 702-200-4900 to learn more.