Extend Your Startup Runway With a Tax Credit That Nobody Talks About
The Problem Founders Don't Know They Have
When I meet startup founders and mention I work in tax, their eyes glaze over. Taxes aren't on their radar. Instead, they're focused on product development, customer acquisition, and making their funding last as long as possible.
Tax planning feels like a problem for profitable companies. Something to worry about later.
But that assumption can cost early-stage companies thousands of dollars every month.
The R&D Payroll Tax Credit Most Startups Miss
There's a tax incentive specifically designed for startups that most founders have never heard of. If your company is generating less than $5 million a year in gross receipts and did not have any gross receipts more than five years ago, you can take your R&D tax credit and apply it directly against employer payroll taxes.
Not income taxes that you're not paying anyway. Payroll taxes that you're sending to the federal government for every payroll run.
Here's how it works:
- The credit equals roughly 10% of your R&D spend.
- If you're spending $1 million on development, that's approximately $100K in credit.
- It offsets the employer portion of payroll taxes you owe on every paycheck. Up to $500K in credit each year can be designated for payroll taxes.
- It can be applied to taxes for all employees, not just technical staff.
- Unused credits carry forward as you scale your team.
Why This Changes the Conversation
The moment I shift from talking about "tax strategy" to "saving cash with every month’s payroll," founders lean in. Because that's what they care about. Extending runway. Making every dollar count.
The Mindset Shift Startups Need
Founders are obsessed with conserving cash. They watch every expense. But they're missing incentives designed to help them do exactly that because they see tax as only relevant when profitable.
This isn't a benefit that kicks in when you turn a profit. Your savings will start before then, when cash flow matters most. You can start using the credit in the next quarter after filing your tax return.
Tax doesn't have to be an expense. In this case, it brings money in and extends the runway you're working so hard to protect.
Are you reviewing the financial incentives you're eligible for today, or waiting until "later" when it might be too late to maximize the benefits?
