If your team in Orange County builds or improves software, devices, hardware or processes, you may earn both the federal and the California R&D credit. We're based in Brea, and our team includes former Big 4 accountants.
One look at your projects and payroll for both credits, not two separate engagements.
For qualified small businesses, up to $500,000 a year of the federal credit can go against payroll tax.
Every claim comes with the project and payroll documentation behind it.
Medical devices and life sciences. Design and testing work, prototypes and lab costs. Irvine and the rest of Orange County have a lot of these companies.
Software. Teams building new products or solving hard technical problems, where most of the qualifying cost is engineering pay.
Hardware, aerospace and defense suppliers. New parts, materials and test rigs, including supplies used up in the testing.
Manufacturers. Work to make a process faster, cheaper or more reliable, not only new products.
Whether a project counts depends on the work, not the industry. The check starts with what your team actually built and who was paid to build it.
California gives its own research credit for work done in California. The regular method is 15% of qualified research expenses above a base amount. For tax years starting in 2025 or later, companies can instead use a simpler method: 3% of expenses above half of the prior three-year average.
The California credit isn't refundable and can't be used against payroll tax, but unused credit carries forward until it's used. For a pre-revenue Irvine company, the federal payroll tax offset is usually what helps first.
The full rules, side by side with the federal credit, are on our California R&D tax credit page. For the federal rules, see the R&D tax credit guide, or see Los Angeles and San Diego.
If the work meets the four-part test and is done in California, usually both. California's credit has no payroll tax offset and isn't refundable, so for a pre-revenue company the federal credit is usually what helps first. The California credit carries forward until the company owes state tax.
Not automatically more, but often broader: hardware and biotech R&D tends to involve more contract research and prototype costs alongside engineering wages, both of which can count as qualified research expenses if they meet the four-part test, whereas a pure software team's qualifying spend is usually just engineering payroll.
Tell us what your team built this year. We'll tell you if there's a federal or California credit in it.