The Question

“Is it ever not worth doing an R&D tax credit study?”

It’s a fair question — and one not enough firms answer honestly.
Most companies hear about the R&D tax credit as a “no-brainer.” But the truth is: sometimes, it isn’t worth it.

The R&D credit can deliver real value — often 5–10% of qualifying spend — but only when the benefit meaningfully outweighs the cost and effort required to claim it.

Knowing when not to move forward is just as important as knowing when to claim.

The Short Answer

An R&D tax credit study may not be worth the cost if:

1. Your qualified R&D payroll is small (usually under $250,000).

2. You have little or no contemporaneous documentation.

3. Your team or contractors are located outside the U.S.

4. You’re pre-revenue with no payroll tax liability and no U.S. employees.

5. You’re in an early experimentation phase where qualifying work is minimal or unclear.

In these cases, it’s often smarter to wait, set up better systems, and come back when the ROI justifies the effort.

The Deep Dive

1. Minimal Payroll or R&D Spend

The R&D credit is calculated as a percentage of qualified research expenses (QREs) — primarily U.S. wages.
If your total annual R&D payroll is under $250,000, your potential credit might only be $10,000–$20,000.

That can sound appealing, but once you factor in the cost of a professional study (typically $8,000–$20,000) and the administrative lift, the net return may be negligible.

Rule of thumb:
If the potential benefit doesn’t comfortably exceed the cost of a proper, audit-defensible study, it’s worth waiting until the numbers scale.

2. No Documentation or Tracking Systems

Even legitimate R&D work can fail to qualify if there’s no evidence of it.
The IRS expects contemporaneous records — design docs, Jira tickets, source-code commits, time tracking, technical notes.

If your team isn’t tracking work or hours in any structured way, a study will rely heavily on memory and estimates — which weakens defensibility and limits what can be claimed.

In this case, the best next step isn’t filing — it’s building your documentation muscle:

• Start linking engineering projects to product goals.

• Capture sprints, commits, and technical decisions as you go.

• Keep payroll and project data organized by quarter.

A little structure now will make future studies faster, cheaper, and more accurate.

3. Mostly Offshore Teams

The R&D tax credit is a U.S. incentive — it only covers wages and contractor costs for work performed within the United States.
If most of your engineers or developers are overseas, your qualified U.S. expenses may be too small to justify a full study.

That doesn’t mean you’ll never qualify.
As you add U.S.-based technical staff or contractors, your eligible spend (and your credit) grows — but until then, a full study may not provide much benefit.

4. Pre-Revenue Companies With No U.S. Payroll

The credit includes a powerful payroll tax offset for startups — up to $500,000 per year — but it only applies if you have U.S. payroll tax liability.

If you’re pre-revenue and have no U.S.-based employees yet, you can’t use the offset.
A study in this stage might produce a theoretical credit that can’t actually be claimed.

The better move:

• Wait until you begin paying U.S. wages.

• Set up payroll systems that separate engineering and non-engineering roles.

• Plan to claim retroactively for the first qualifying year.

You can still capture past credits once you have payroll to offset.

5. Early Experimentation or MVP Stage

In the earliest stages of product development — pre-MVP or ideation — your engineering work may not yet meet the four-part test for qualified research.

For example:

• You’re still defining product-market fit rather than solving technical uncertainty.

• Most time is spent on design, wireframing, or business modeling rather than engineering experimentation.

• You don’t yet have defined hypotheses or iterations that would demonstrate a process of experimentation.

That’s normal — and temporary. Once development work begins in earnest, the qualification picture changes dramatically.

6. When a “Free” or Low-Cost Study Is the Wrong Fit

Even if someone offers a “free” or contingent-fee R&D study, it can still be a poor use of resources.
If the potential credit is small or uncertain, these models may:

• Inflate claims to justify the fee, increasing audit risk.

• Deliver minimal documentation that can’t support future filings.

• Lock you into long-term contracts for marginal benefit.

When the underlying R&D base is small, even a “no upfront cost” study can cost more than it’s worth — just in different ways.

7. The Right Move: Prepare, Don’t Pause

If you fall into one of these categories, it doesn’t mean the R&D credit isn’t for you. It just means not yet.
The smart play is to prepare rather than rush.

Here’s what to do while you wait:

• Set up documentation now. Tag qualifying work as it happens.

• Track R&D spend separately. Payroll, contractors, and tools.

• Revisit annually. Credits can be claimed retroactively for up to three prior years.

That way, when the time is right, you’ll have everything in place — and you’ll capture a much larger, cleaner, and safer credit.

The Takeaway

The R&D credit can be one of the most valuable incentives available to innovative companies — but only when the math, documentation, and timing make sense.

A study isn’t worth it when:

• The cost outweighs the benefit,

• The documentation doesn’t exist, or

• The company simply isn’t ready yet.

Sometimes, the most strategic move is to wait, organize, and prepare — so when you do claim, you claim with confidence.