Hi-Tech R&D Credit

Many hi-tech hardware companies mistakenly believe the R&D Tax Credit is only for "groundbreaking" or revolutionary inventions. The reality is that this incentive is designed to reward the day-to-day process of creating new or improved physical products, regardless of their market impact.

Eligibility is built into the product development lifecycle. It rewards the process of experimentation used to resolve technical uncertainty—whether that involves figuring out the optimal material, developing a complex manufacturing process, or ensuring different physical systems can work together reliably. The credit applies to the systematic process of designing, building, and testing to create a functional product.

 

Qualifying activities occur throughout the entire development process:

 

System Architecture & Schematic Design

This foundational phase involves planning the product's physical structure and electronic functionality to overcome technical hurdles.

• Conducting feasibility studies and defining technical specifications for new products.

• Evaluating alternative components, materials, and design topologies to meet performance targets.

• Designing the system-level architecture, schematics, and layouts for PCBs or integrated circuits.

 

Prototyping & Fabrication

This is the implementation phase where the engineering designs are turned into physical, testable units.

• Building physical prototypes, including 3D printing, CNC machining, and prototype assembly.

• Developing novel fabrication techniques or custom components (e.g., ASICs, custom sensors).

• Integrating mechanical, electrical, and firmware subsystems to ensure they function together correctly.

 

Validation & Verification Testing

This iterative process is critical for validating the hardware and is a core part of the experimental process.

• Conducting initial prototype "bring-up," board-level diagnostics, and subsystem testing to identify design flaws.

• Performing environmental, stress, and regulatory testing (e.g., thermal, EMC, drop tests) to ensure reliability.

• Refining the physical design based on test data to improve performance, manufacturability, and yield.

 

From the initial concept to the final production release, the iterative process of hardware development is filled with qualifying R&D that can result in significant tax savings.