The Question

“I need to check with my CPA to see what our tax liability is before we do an R&D study.”

This is one of the most common — and most misunderstood — pauses companies make when considering the R&D credit.

It sounds reasonable.
It sounds responsible.
And in many cases, it’s the wrong gate to put first.

The assumption behind the question is simple:
If we can’t use the credit right now, it’s probably not worth doing.

That assumption quietly stops a lot of good R&D credits before they ever start.

The Short Answer

You do not need current tax liability for an R&D credit to be valuable.

R&D credits can:

• be used immediately in some cases,

• reduce payroll taxes even when a company is not profitable,

• and be carried forward for up to 20 years at the federal level — and indefinitely in some states, including California.

Tax liability affects timing, not value.

Once companies understand that distinction, decisions tend to change quickly.

Why This Misconception Is So Common

Most tax incentives do require current tax liability to matter. So it’s natural to assume the same logic applies here.

Add in a few other factors:

• early-stage companies operating at a loss,

• CPAs focused on current-year returns,

• and the idea that credits are “use it or lose it,”

and the conclusion feels obvious: check liability first.

The problem is that the R&D credit is structured very differently from most deductions and credits.

How R&D Credits Actually Work in Practice

Immediate Use Isn’t the Only Use

At the federal level, eligible companies can often apply R&D credits against payroll taxes, not just income taxes. That creates real, near-term cash-flow relief even when the company isn’t profitable.

That alone changes the conversation for many startups and growth-stage companies.

But even when payroll offsets aren’t available or fully utilized, the credit doesn’t disappear.

Carryforwards Are the Real Backbone

Federal R&D credits can be carried forward for 20 years.

That means credits generated today can:

• reduce future income taxes when the company becomes profitable,

• offset taxes after an IPO,

• or be used post-acquisition if structured correctly.

Some states go even further.

In California, unused R&D credits can be carried forward indefinitely. There is no expiration clock forcing companies to “use it or lose it.”

Once companies internalize this, the question shifts from “Can we use it this year?” to “Do we want this tax asset on the balance sheet?”

Why Waiting for Tax Liability Is Often Backward

When companies delay R&D studies until they have tax liability, they often miss the years where:

• uncertainty was highest,

• founders were deeply involved in technical decisions,

• and the R&D story was simplest and cleanest.

Those early years don’t come back easily.

Reconstructing them later is possible — but it’s harder, riskier, and more expensive than capturing them correctly in real time.

Ironically, waiting until the credit feels “usable” often reduces its quality.

The Strategic Value Beyond Cash

R&D credits aren’t just about near-term cash savings.

They create:

• long-lived tax attributes,

• cleaner diligence files,

• and signals of operational maturity to buyers and investors.

In an acquisition, credits with consistent methodology and strong documentation are more likely to be valued — or at least not discounted.

Credits that were never claimed because “we didn’t have liability yet” simply don’t exist.

What the Right Question Actually Is

The better question isn’t:

“Do we have enough tax liability to use this?”

It’s:

“Is the work we’re doing likely to generate a credit that we’d want on the books?”

If the answer is yes, tax liability becomes a timing discussion, not a gating one.

That shift in framing is often the difference between acting decisively and staying stuck in analysis.

The Takeaway

R&D credits are not a one-year optimization tool.

They’re a long-term tax asset.

Companies that wait for tax liability before engaging often:

• delay value unnecessarily,

• complicate documentation later,

• and miss the cleanest window to build defensible credits.

Understanding that credits can be used now, later, or much later — sometimes indefinitely — changes the decision entirely.

For many companies, that realization is the moment the credit stops being hypothetical and starts being strategic.