Key points covered in this article:

• • Many businesses may already be performing qualifying R&D activities without realizing it, especially when they are developing software, improving products, refining processes, or solving technical challenges as part of normal operations.
  • Under current rules, domestic research may be eligible for immediate expensing under Section 174A, while the Section 41 R&D tax credit remains available, making accurate identification of qualifying activities more valuable in 2026.
  • The key distinction is whether the work involves technical uncertainty and a process of experimentation, which means strong documentation and cross-functional coordination are essential for capturing available tax benefits.

Third in a Series on Recent R&D Tax Law ChangesThis article builds on the evolving R&D tax landscape covered in:

Part 1: Small Businesses Face July 6 Deadline for R&D Tax Amendments 

Part 2: How Some Businesses Can Accelerate Remaining R&D Deductions  

Together, these articles outline who may qualify for relief, how deductions can be accelerated, and what deadlines may apply. This article addresses a foundational question many businesses continue to ask:

What actually qualifies as R&D under today’s rules?

Across industries, many organizations are surprised to learn they may already be performing qualifying R&D activities. That realization is becoming more important given recent changes that allow for immediate expensing of domestic research and the continued availability of the R&D tax credit.

Under Section 174A, domestic research expenses can once again be deducted in the year they are incurred. At the same time, the Section 41 research credit remains in place, creating an opportunity for both deductions and credits when activities qualify.

As discussed in the earlier articles, these changes can create meaningful tax benefits—but only if businesses correctly identify the work that qualifies.

That leads to a natural and often overlooked question:

Is the work already being done inside the business actually considered R&D for tax purposes?

R&D Is Broader Than Many Businesses Expect

One of the biggest barriers to capturing R&D incentives is the assumption that the work must be highly technical, scientific, or laboratory-based.

The tax code looks at the nature of the activity, not the industry. If a business is trying to develop something new, improve how something works, or solve a technical challenge, it may already be performing qualifying R&D.

This often includes work that teams simply consider part of normal operations, refining a process, updating software, or improving a product. Because these efforts are routine from a business perspective, they are often overlooked from a tax perspective.

Where R&D Commonly Shows Up

For many organizations, R&D is not confined to a single department. It shows up across teams and functions, often in ways that are easy to miss without a closer look.

A common example is software development. Whether a company is building internal tools to improve efficiency or creating platforms for customers, those development efforts frequently meet the criteria for R&D.

Similarly, product development and enhancement activities often qualify. When a business is testing new designs, refining materials, or improving functionality, it is often working through uncertainty—one of the defining characteristics of R&D.

Process improvements can also fall within scope. Efforts to streamline operations, reduce costs, or enhance service delivery may qualify when they involve evaluating alternatives and testing different approaches.

Even engineering and technical problem-solving—work that many teams view as part of their day-to-day responsibilities—can meet the definition when it involves resolving uncertainty through structured analysis or experimentation.

A key point that is often misunderstood is that success is not required. Projects that do not ultimately achieve their intended outcome may still qualify, as long as the effort involves a genuine attempt to resolve technical uncertainty.

Where the Line Is Drawn

While the definition of R&D is broad, it is not unlimited. The distinction between qualifying and non-qualifying activities typically comes down to whether the work is truly experimental in nature.

Routine or repetitive activities generally do not qualify. This includes standard quality control testing, basic data gathering, and administrative or management functions. Similarly, efforts focused purely on aesthetics—without improving how something technically performs—are usually excluded.

The difference is not always obvious. Two activities may look similar on the surface, but if one involves uncertainty and experimentation while the other follows a known process, only one may meet the threshold.

The Framework Still Matters

Even with recent law changes, the underlying criteria used to evaluate R&D activities have not changed. Under Section 41, qualifying work is still evaluated through a structured framework that focuses on purpose, uncertainty, and experimentation.

At its core, the question is whether the business was trying to create or improve something, whether there was uncertainty in how to do it, and whether there was a deliberate process to resolve that uncertainty.

This framework continues to apply regardless of whether a business is claiming a credit, accelerating deductions, or simply reassessing how its activities are treated under current law.

Why So Many Businesses Miss It

Even with a broad definition, many organizations do not fully capture their R&D activities. This is rarely intentional. More often, it reflects how work is organized internally.

R&D rarely sits neatly in one place. It may spread across IT, operations, engineering, and product teams. Without a centralized process to identify and track it, qualifying work can easily go unrecognized.

There is also a language gap. Teams are focused on delivering outcomes, not labeling their work as “research” or “experimentation.” As a result, activities that clearly meet the criteria may never be evaluated as such.

Documentation plays a role as well. Even when qualifying work is happening, it may not be recorded in a way that aligns with tax requirements, making it harder to support claims or optimize benefits later.

How This Connects Across the Series

Looking at the full series, a clear theme emerges. Each article addresses a different piece of the same puzzle.

The first article focuses on businesses that may still be able to look back and amend prior returns before the July 6, 2026, deadline. The second highlights how businesses, particularly those that cannot amend—can accelerate remaining deductions through their 2025 filings.

This article connects those strategies to the underlying activity itself. None of those opportunities can be fully realized without first identifying what qualifies.

Practical Considerations Moving Forward

As businesses move through 2026, the conversation is shifting from awareness to action. Organizations are taking a closer look at where qualifying activities occur, how those activities are classified, and whether they are being captured consistently.

There is also a growing emphasis on alignment. R&D activity, financial reporting, and tax treatment all need to work together. When they do, businesses are better positioned to make informed decisions about deductions, credits, and long-term planning.

Documentation remains a central part of that process. While the rules governing deductions have changed, the expectation to substantiate qualifying activities has not. Clear records continue to support both compliance and confidence in the approach being taken.

How PBMares Can Help

PBMares works with organizations to bring clarity to how R&D activities are identified and applied within the tax framework. This includes helping businesses connect their day-to-day operations with the criteria that determine eligibility, ensuring that qualifying work is recognized and properly supported.

The approach goes beyond identification. By aligning deductions, credits, and documentation with broader tax strategies, the goal is to create a more cohesive and effective path forward—one that reflects both current opportunities and future planning needs.

Take the Next Step

Many businesses are already performing activities that qualify for R&D-related tax benefits without realizing it. With immediate expensing restored for domestic research and the continued availability of the R&D tax credit, now is an ideal time to take a closer look.

To explore how these changes may impact your organization, contact Dan Chenoweth, Partner on the PBMares’ Credits & Incentives team. Our experience in R&D tax matters can help you assess your position, navigate the technical requirements, and move forward with confidence.