Activities generally must address technological uncertainty through a process of experimentation involving a qualified business component. Contract rights, funding and location can affect eligibility. Ordinary customization or routine quality control does not automatically qualify.
Track project objectives, uncertainty, testing, staff time and qualifying costs as the work occurs. The deduction treatment of research costs is a separate question from whether an expense earns a credit.
An example
Hypothetical: a contractor trials alternative technical designs to resolve an engineering uncertainty. The company needs a project-level review and cost records; describing the job as innovative is not enough to claim a credit.
Reviewed October 7, 2026. IRS reference ↗
This is a general reference. Discuss how the rules apply to your business with your tax professional.