One of the most common things we hear from founders and finance leaders sounds like this:

“We need to check with our CPA to see if we even have tax liability to use the credit.”

On the surface, that sounds reasonable.

In reality, it often misunderstands how R&D credits actually create value — especially for growing software and technology companies.

The R&D credit is not just about this year’s tax bill.
In many cases, its real value shows up years later.

That’s where carryforwards come in.

The Core Misconception

Many people think of tax credits like refunds:

• if you can’t use them this year,

• they don’t matter yet,

• or they somehow “expire” unused.

That logic applies to some tax items.
It does not apply to the R&D credit.

Federal R&D credits can generally be carried forward for up to 20 years.
Some states allow credits to be carried forward indefinitely.

That fundamentally changes how the credit should be evaluated.

What a Carryforward Actually Is

A carryforward is simple in concept:

If you generate an R&D credit in a year where you can’t fully use it, the unused portion doesn’t disappear.

It becomes a tax attribute that can offset future tax liability when the company:

• becomes profitable,

• has a liquidity event,

• or experiences a step-change in earnings.

Nothing about the credit’s legitimacy depends on whether it’s used immediately.

Why Carryforwards Matter So Much for Growth Companies

For early-stage and scaling companies, this matters more than almost anything else.

Many software companies:

• invest heavily in R&D before profitability,

• run losses or breakeven for years,

• and don’t have meaningful income tax liability early on.

If you evaluate the R&D credit only through a “can we use it this year?” lens, you’ll consistently undervalue it.

Carryforwards allow companies to:

• build tax assets during investment years,

• and unlock value later when earnings materialize.

This is especially important because R&D spending often peaks before profits do.

Carryforwards Change the Decision Timeline

Without carryforwards, the decision would be binary:

• tax liability → credit matters

• no tax liability → credit doesn’t matter

With carryforwards, the decision becomes strategic:

• Do we expect taxable income at some point in the next 5, 10, or 15 years?

• Do we expect an exit, acquisition, or IPO?

If the answer is yes, carryforwards turn today’s R&D activity into tomorrow’s tax leverage.

Federal vs. State Carryforwards

This is where nuance matters.

At the federal level:

• credits generally carry forward 20 years,

• unused credits remain available until applied or expired.

At the state level:

• rules vary widely,

• some states limit carryforwards,

• others allow them indefinitely,

• some impose usage caps or ordering rules.

This is why the value of a credit isn’t just about the rate — it’s about how and when it can be used.

Carryforwards as Tax Attributes (Not Just Tax Savings)

Another important shift in thinking:

Carryforwards are not just tax offsets.
They are tax attributes.

That matters because:

• buyers and investors look at them during diligence,

• credits with clear methodology and documentation are more likely to be valued,

• weak or inconsistent credits are often discounted or ignored entirely.

In other words, the quality of the carryforward matters just as much as the amount.

Why This Ties Back to Documentation and Methodology

Carryforwards don’t exist in isolation.

They’re only as strong as:

• the methodology used to calculate them,

• the consistency of claims year over year,

• and the documentation supporting the underlying R&D.

A poorly supported credit carried forward for 10 years is not an asset — it’s a liability waiting to surface.

This is why companies that treat the R&D credit as a system tend to extract more long-term value than those chasing one-year results.

When Carryforwards Are Especially Powerful

Carryforwards tend to be most valuable when:

• a company is pre-profit but scaling rapidly,

• R&D spend is front-loaded,

• future profitability is expected,

• or an acquisition is a real possibility.

In these scenarios, the credit’s value is often delayed, not diminished.

The Takeaway

If you judge the R&D credit only by whether it offsets tax this year, you’ll miss most of its value.

Carryforwards allow companies to:

• convert early-stage R&D investment into long-term tax leverage,

• smooth the transition from loss to profitability,

• and build tax attributes that matter in future transactions.

That’s why the right question isn’t:

“Can we use the credit right now?”

It’s:

“Will we wish we had built this tax asset later?”

For many growing technology companies, the answer is yes.