The Tax Credits Most Startups Overlook (And How to Claim Them)

When you are focused on product development, fundraising, or managing burn, it is easy to miss some of the most valuable tax credits available to startups. Many founders assume incentives are meant only for profitable or mature companies. In reality, recent legislation like the One Big Beautiful Bill Act (OBBBA) and other longstanding credits can actually deliver real savings to early-stage, pre-revenue companies.

Here are the top tax incentives startups often overlook—and how to act on them today:

Research and Development (R&D) Tax Credits — Federal and State

If your team is developing a new or improved product, solving technical problems with a clear business component at stake, or building prototypes, you likely qualify for R&D credits. This includes:

• Up to 10 percent of qualified research expenses
• The ability to offset payroll taxes for startups less than 5 years old with under $5 million in gross receipts
• State-level credits that stack with the federal benefit in many jurisdictions
  

After OBBBA, domestic R&D expenses can be fully expensed, not amortized, giving startups more immediate liquidity. Small businesses may even amend recent returns for refunds.

Retirement Plan Startup Credit (SECURE Act 2.0)

Launching a 401(k) or similar plan is now more affordable. Startups can claim up to:

• $5,000 per year for three years for new retirement plans
• $1,000 per employee credit for employer contributions

These credits can effectively wipe out setup costs and make offering benefits feasible early on.

Small Business Health Insurance Credit (SHOP)

If your startup offers health insurance and covers at least 50 percent of the premiums, you may be eligible for:

• Up to 50 percent credit on employer-paid premiums
• Available to firms with fewer than 25 employees and modest average wages

This often-overlooked credit can significantly offset benefits costs.

Work Opportunity Tax Credit (WOTC)

Hiring from targeted groups like veterans, SNAP recipients, or long-term unemployed individuals opens the door to:

• Credits ranging from $1,200 to $9,600 per eligible hire

For lean startups building teams quickly, WOTC delivers immediate value.

OBBBA Highlights for Startups

OBBBA introduced some powerful updates that should be top of mind:

Full Expensing of Domestic R&D

Startups can immediately deduct domestic R&D costs rather than amortize, improving cash flow in 2025 and beyond. Retroactive refunds may be available by amending 2022–2024 tax returns.

Qualified Small Business Stock (QSBS) Upgrades

Rules serve investors better now:

• Gross asset cap increased from $50 million to $75 million
• Exclusion amount raised to $15 million or 10× basis, whichever is greater
• Tiered holding periods: 50 percent exclusion at 3 years, 75 percent at 4, 100 percent at 5

Better Interest Deduction Flexibility

Interest deductions are now calculated using EBITDA rather than EBIT, which allows more expense deduction for capital-intensive startups.

How to Claim These Credits

These programs require specific documentation and filings such as:

• Payroll records
• Qualified activity logs
• IRS forms like Form 6765 for R&D or WOTC filings

That is why TaxTaker is a valuable partner for fractional CFOs and startups. TaxTaker helps you:

• Identify eligible credits at the federal and state levels
• Decide between amortizing or expensing R&D under OBBBA
• Coordinate amendments for retroactive refunds
• Prepare audit-ready documentation

Startups are innovation engines but often forget that the government rewards that innovation through tax incentives. These programs can bolster runway, offset payroll, fund benefits, and even drive investor interest via QSBS advantages.

If your company is innovating, hiring, or investing in your team, it’s time to explore what you qualify for.