The bioscience industry thrives on innovation, from groundbreaking pharmaceuticals and medical devices to agricultural biotechnology and diagnostic tools. But innovation is expensive, and many companies don’t realize they can recover a significant portion of those costs through the Research and Development (R&D) Tax Credit. For bioscience companies, this incentive can improve cash flow, fund future research, and accelerate time to market.
What Are R&D Tax Credits?
The R&D Tax Credit, established under Section 41 of the Internal Revenue Code, rewards U.S. businesses that invest in developing new products, processes, or technologies. Contrary to what many assume, the credit is not limited to companies with research labs or multimillion-dollar budgets, it’s available to businesses of all sizes engaged in qualified research activities.
The credit can be used to offset federal income tax liability, and in some cases, payroll taxes for startups with little or no taxable income.
Why Are Bioscience Companies a Perfect Fit?
Bioscience companies are inherently research-driven. Whether you’re developing a novel therapeutic, refining a fermentation process, or designing a medical device, your work likely meets the IRS’s four-part test for qualified research:
- Permitted Purpose – The activity seeks to develop a new or improved product, process, or formula.
- Technological in Nature – The work relies on principles of biology, chemistry, physics, or engineering.
- Elimination of Uncertainty – The research aims to resolve technical or design uncertainties.
- Process of Experimentation – A systematic trial-and-error process is used to achieve results.
This means that everything from early-stage lab testing to clinical trial design and even software used to analyze biological data can potentially qualify.
Common Eligible Activities in Bioscience
- Developing new drugs, biologics, or gene therapies
- Designing and testing medical devices or diagnostic tools
- Improving fermentation, cell culture, or manufacturing processes
- Creating bioinformatics or data analytics software
- Conducting clinical trials or prototype testing
- Developing new lab equipment or specialized reagents
What Expenses Qualify?
The credit is based on Qualified Research Expenses (QREs), which typically include:
- Wages for employees involved in qualified research activities
- Supplies used in experimentation or prototyping
- Contract research expenses paid to outside consultants or CROs (at a reduced percentage)
- Cloud computing costs used for developing or testing software and algorithms
Federal R&D Tax Credit Changes: Significant New Benefits for Bioscience Companies
The federal R&D tax credit has long been a valuable incentive for bioscience companies investing in innovation. Recent legislative changes have dramatically enhanced this credit, creating substantial new opportunities for companies across the life sciences sector.
Section 174 Relief: Immediate Expensing Returns
Beginning in 2022, tax law required businesses to capitalize and amortize research and development expenses over five years for domestic R&D (fifteen years for foreign R&D). This created significant cash flow challenges for R&D-intensive bioscience companies, particularly those in growth phases or conducting extensive clinical research.
Recent legislation reverses this requirement for domestic R&D expenses. Through the creation of new Section 174A, taxpayers can once again immediately deduct domestic research and experimental expenditures for tax years beginning after December 31, 2024. Alternatively, taxpayers may elect to capitalize and amortize these costs over at least 60 months if that approach better aligns with their tax planning strategy.
Retroactive Relief and Catch-Up Provisions
The legislation includes two important transition rules that may provide substantial tax benefits for bioscience companies:
For All Taxpayers: Any remaining unamortized domestic R&D expenses from 2022-2024 may be elected to be fully deducted in 2025, or spread ratably over 2025 and 2026. This catch-up provision could create significant refund opportunities, particularly for companies with substantial R&D investments during this period.
For Qualified Small Businesses: Companies with average annual gross receipts of $31 million or less for the three tax years preceding 2025 can elect to apply the new immediate expensing rules retroactively to tax years beginning after December 31, 2021. This allows them to potentially amend returns for 2022 through 2024 to claim immediate deductions rather than amortization. The deadline to make this election is July 4, 2026.
What This Means for Bioscience Companies
For bioscience companies conducting qualifying research—whether in drug development, medical device innovation, diagnostic testing, or biotechnology—these changes represent a meaningful opportunity to improve cash flow and reduce tax liability. The restoration of immediate expensing, combined with retroactive relief options, can free up capital for continued investment in research and development.
The CSSI Advantage
Identifying and documenting eligible research can be complex, especially in an industry with highly technical processes and strict regulatory oversight. At CSSI, we specialize in uncovering every qualifying dollar while keeping compliance front and center. Our engineering-based approach ensures your claim is thoroughly documented, defensible, and audit-ready.
We’ve helped thousands of companies, including those in bioscience, maximize their tax savings through R&D credits. Whether you’re a startup preparing for your first clinical trial or an established firm scaling production, CSSI can help you leverage these powerful incentives to grow faster.
Final Thoughts
The bioscience industry is advancing rapidly, but so are the costs of innovation. By claiming the R&D Tax Credit, bioscience companies can reinvest tax savings into their most important mission: improving lives through science.
Ready to see how much your bioscience company could save? Contact CSSI today to schedule a no-obligation R&D credit analysis, or see how much you could qualify for on the fly with our new R&D Tax Credit Calculator.
