Quick Takeaways:

• IRS reporting requirements for R&D tax credits were significantly updated for tax year 2024.
• Section G reporting is now mandatory in 2025 for businesses with over $1.5 million in QREs.
• New standards require detailed disclosure of R&D activities and business components.
• Businesses must reassess their R&D tracking and documentation strategies to stay compliant and prepare for potential IRS audits.

Navigating the 2024 Changes to R&D Tax Credit Reporting

The IRS overhauled R&D tax credit reporting for the 2024 tax year, introducing stricter obligations for businesses claiming the credit.

Although many business owners won't typically complete these technical forms themselves— as it requires a deep understanding of IRS definitions, qualified research expenses, and new documentation standards. Partnering with an experienced tax advisor is key to protecting your credits.

What Has Changed?

• Companies must now break down expenses by business component, linking costs to specific products, processes, or software developments.
• Businesses are required to describe the information sought through research activities in greater detail.
• New compliance questions focus on how R&D activities are structured and calculated.

These changes place a greater emphasis on precise documentation and proactive planning.

Key Changes Impacting R&D Tax Credit Claims for 2024

• Businesses must now summarize total R&D expenses and break out expenses by specific business components (such as products, processes, or software developed).
• New IRS questions require businesses to disclose how they calculate research expenses and describe their R&D projects more clearly.
• Companies must report their top R&D projects and explain the technological information they aimed to discover.
• Businesses electing special tax treatments (such as the reduced credit under Section 280C) must make specific disclosures.
• Starting in 2025, detailed project-level reporting is mandatory for businesses with over $1.5 million in Qualified Research Expenses (QREs).

Why These Changes Matter for Business Owners

The IRS's intent with these updates is to strengthen documentation standards and ensure that R&D credit claims are properly substantiated. For business owners, this means:

• Higher audit risk if documentation is incomplete or inconsistent.
• Greater internal burden to track R&D projects and expenses precisely.
• Potential loss of valuable tax credits without expert guidance.

Because R&D credit reporting is technical and demands exact alignment with IRS expectations, working with a specialist like KLR can help business owners avoid costly mistakes and protect their credits.

Companies must act quickly to ensure their 2024 filings meet the new standards and to prepare properly for future filings.

FAQs About the 2024 R&D Tax Credit Changes

1. What are "business components" and why do they matter for the R&D credit?
Business components are distinct products, processes, software, or techniques your company developed or improved during the year. Identifying these correctly is critical because the IRS now requires more detailed reporting about R&D activities tied to each business component. KLR helps businesses track and document these elements to maximize credit eligibility and compliance.

2. What is ASC 730, and does it apply to my company?
ASC 730 is an IRS directive allowing certain large taxpayers to use financial statement R&D expenses as a proxy for calculating R&D tax credits. If your business prepares GAAP-compliant financials that report R&D expenses, our specialists will evaluate whether the ASC 730 method is a fit for your filing.

3. How should R&D expenses be tracked and allocated?
Rather than applying general estimates, expenses now must be linked to specific projects or business components. KLR works with your team to develop systems that properly track qualified activities and costs, aligning with the new IRS expectations.

4. What does "information sought to be discovered" mean, and how is it documented?
This phrase refers to the new knowledge, capabilities, or improvements your company pursued through R&D. Our team helps craft precise, IRS-compliant descriptions that support your credit claims and withstand scrutiny.

5. When did these new reporting requirements become mandatory?
The updated Section G reporting rules became mandatory for 2025 filings for businesses with over $1.5 million in Qualified Research Expenses.

Action Steps: How to Prepare for 2024 R&D Credit Claims

To ensure compliance with the new IRS requirements, businesses should:

• Update R&D tracking systems to capture expenses at the business component level.
• Coordinate across departments (tax, finance, R&D) to ensure accurate project documentation.
• Review 2024 filing documentation to identify gaps and correct any issues before final submission.
• Prepare detailed descriptions of research goals and outcomes for each major project.
• Engage an experienced R&D tax credit advisor to oversee reporting and ensure full compliance.

Unsure if your 2024 R&D credit documentation meets the new IRS standards?
KLR's experienced R&D Tax Credit team can help you navigate the updated requirements, document your qualified research activities properly, and protect your credits against audit risk.