Los Angeles · R&D Tax Credit
If your Los Angeles startup pays engineers or product staff to build or improve software or hardware, it likely qualifies for the R&D tax credit. Staxiom's team includes former Big 4 accountants.
Federal and California R&D credit studies for engineering and product work.
Pre-revenue companies applying the credit against payroll tax instead of income tax.
Every study comes with the project and payroll documentation behind the claim.
Los Angeles's engineering-heavy startups, from Silicon Beach media-tech to hardware and aerospace-adjacent companies further inland, often carry more qualifying R&D activity than founders realize, especially pre-revenue companies that assume a credit needs taxable income to be worth claiming. It doesn't: the payroll tax offset lets a pre-revenue company apply the credit against payroll tax instead.
Read the full breakdown of what qualifies, what it's worth, and how to claim it on the R&D tax credit guide, or see how this looks for Orange County and San Diego startups.
On top of the federal credit, California offers its own R&D credit: 15% of qualified research expenses above a calculated base amount, or 24% of basic research payments made to qualified universities and nonprofits. It's nonrefundable but carries forward indefinitely, so it isn't lost if a company doesn't owe enough California tax to use it right away.
One real difference worth knowing before counting on it: California's credit has no equivalent to the federal credit's payroll tax offset, so it only has value once there's actual California income tax liability to offset. A pre-revenue startup should plan around the federal credit first; see the Section 174 treatment and run an estimate before assuming both credits land the same way.
Yes, on top of the federal credit, for research done in California. The regular method is 15% of qualified research expenses above a base amount, and corporations also get 24% of basic research payments to universities and similar groups. For tax years starting in 2025 or later, California also allows a simpler method: 3% of expenses above half the prior three-year average. The credit isn't refundable, but unused credit carries forward until it's used.
For the federal credit, yes, a pre-revenue or early-revenue company can apply up to $500,000 of it against payroll tax instead of income tax. California's state credit doesn't have an equivalent payroll tax offset, so the state credit specifically only has value once there's California income tax liability to offset, which is why the federal credit is usually the more immediately useful one for a pre-revenue LA startup.
Only California research counts, the rates are different, and there's no payroll tax offset in California. It's claimed separately on Form FTB 3523, and you can claim it even if you don't claim the federal credit. For 2024 through 2026, California also caps all business credits at $5 million a year, which matters only for larger companies.
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