A common question is whether incremental improvements can qualify for the federal R&D tax credit. The short answer is that incremental improvements may constitute qualified research when they involve a technical uncertainty and a process of experimentation. Routine incremental changes using known methods generally are not qualified research. This page explains the framework in general terms. It is educational and is not individualized advice. For the foundational framework, see our page on qualified research.
When Incremental Improvements May Warrant Review
Incremental improvements may warrant review when the work involves a genuine technical uncertainty and a process of experimentation. Under the four-part test, the work must be for a permitted purpose (developing or improving a business component), be technological in nature, be intended to eliminate uncertainty, and be conducted through a process of experimentation.
An incremental improvement — a small change to an existing product or process — may satisfy the four-part test if the change involves a technical uncertainty about whether it can be achieved and a process of experimentation to resolve that uncertainty.
Routine Incremental Changes vs. Improvements as Research
A central distinction is between routine incremental changes and improvements as research:
- Routine incremental changes — making small changes using known methods and known approaches. There is no technical uncertainty about whether the change can be made. This is routine work, not research.
- Improvements as research — making changes where there is a technical uncertainty about whether the change can achieve the required performance, and evaluating alternatives to resolve that uncertainty. This may warrant review.
The distinction turns on whether there is a genuine technical uncertainty and a process of experimentation, not on the size of the improvement.
Hypothetical Example
Consider a manufacturer that makes an incremental improvement to an existing product and is uncertain whether the improvement can achieve the required performance. The company evaluates alternative approaches, tests each, and systematically varies the approach to resolve the uncertainty. This incremental improvement may warrant review as qualified research.
By contrast, if the same manufacturer makes a routine incremental change using a known method, that is routine work, not research.
These examples are illustrative only and do not state whether any particular activity qualifies.
Key Takeaway
Incremental improvements may constitute qualified research when they involve a technical uncertainty and a process of experimentation. Routine incremental changes using known methods generally are not qualified research. Because the distinction is fact-specific, professional review is appropriate before claiming the credit.