The R&D Tax Credit Aspects of Boston Start-Ups
Boston area is known for being one of the nation’s prime innovation
hubs. With world class universities like MIT, Tufts and Harvard
nearby, and a local community of private investors, the city has a
unique tech culture, one that is collaborative in nature. In
2014, Boston’s innovation economy raised $4 billion in funding—up $1
billion from the previous year. State-wide, there are over 40
university and industry accelerators to help start-ups find the
resources to grow their ideas into a successful business.
Additionally, Boston is home to a number of incubators such as Blade,
Bolt, Cambridge Innovation Center, Greentown Labs, Healthbox,
LearnLaunch, MassChallenge and the Venture Development Center.
The city is also home to a number of start-ups that
use local incubators for a number of services from lab equipment usage
to accounting and advising support. Artlifting, a Boston-based
company founded in November 2013 is an online art marketplace that
provides homeless, disabled and other disadvantaged people an outlet
for selling their artwork.
Greensight Agronomics, also located in Boston,
provides daily, automated imaging and analysis of geographic terrains
from the sky. Currently, they are building quad-rotor drones that
work at golf courses. The drones will capture images of the grass,
which will let groundskeepers see areas that might need more or less
water — or a spot application of pesticide.
When start-ups such as these develop technology they
may be eligible for Federal and State Research and Development tax
credits which are available to stimulate innovation.
The Research & Development Tax Credit
Enacted in 1981, the federal Research and Development (R&D) Tax
Credit allows a credit of up to 13% of eligible spending for new and
improved products and processes. Qualified research must meet the
following four criteria:
- New or improved
products, processes, or software
- Technological in nature
- Elimination of
- Process of
Eligible costs include employee wages, cost of
supplies, cost of testing, contract research expenses, and costs
associated with developing a patent. On December 18, 2015,
President Obama signed the bill making the R&D Tax Credit
The R&D Tax Credit for Start-Ups
The new federal tax law is extremely beneficial for start-ups.
For the first time ever, a qualifying start-up can use the credit
against $250,000 per year in payroll taxes beginning January 1,
2016. Essentially, with the new start-up provision, companies can
claim the credit even if they do not pay income tax and regardless of
A company owes $300,000 in payroll taxes and they
qualify for $100,000 in R&D tax credits. The R&D credit can now
be applied to payroll taxes. Therefore, the amount of the payroll tax
that has to be paid is reduced to $200,000. The most amount of money
that can be deducted annually from the payroll R&D Tax Credit is
$250,000. Therefore, if the company qualifies for $300,000 in R&D
credits, the company would now only owe $50,000 in payroll taxes.
Massachusetts State R&D Tax Credit
Massachusetts offers a state
version of the R&D tax credit as well. This tax incentive was
designed to remove any obstacles to R&D investment in order to spur
growth and innovation throughout the Commonwealth. The state tax
credit closely resembles the federal credit program. However, it
specifically offers Massachusetts companies a few extra unique features
for doing business in the state.
Software & Mobile App Start-Ups
Since 2002, software has been the number one industry sector for angel
investments every year. More angel investment dollars go to
software start-ups then start-ups in any other industry. This
includes mobile app development which is heavily software based.
Boston has a number of tech start-ups developing software and mobile
apps, including but not limited to the following:
PlateJoy is a Cambridge-based software company that simplifies the
process of planning out weekly meals for an entire household. By simply telling
the service some basic details, such as family size and dietary
preferences, PlateJoy will recommend recipes and deliver the
ingredients within 24 hours.
Runkeeper: Runkeeper is a Boston-based software start- up.
The Runkeeper app uses GPS technology found in your phone to track your
fitness activity. The company claims they can give the user results comparable to an
expensive GPS watch, at a fraction of the cost. Once the user’s
activity is complete, the data is synced to their website, where a
history of all tracked activities can be viewed.
Additionally, there are a few different tools to both measure and
improve your fitness.
In 2011, Cambridge-based mobile app developer SCVNGR launched a new
mobile payments application platform called LevelUp. Using QR
technology, the product attempts to reengineer the formula with game
mechanisms and location to benefit both the consumer and the merchant.
LevelUp users can locate nearby deals through the iPhone or Android
Upon purchasing and using the first deal at a
partner merchant, the customer has effectively completed Level 1, and
unlocked Level 2, which offers better deals. When the customer returns to the same spot and uses a
Level 2 deal, Level 3 deals, which offer the highest value, are
unlocked. The idea is that first-time diners will turn into regulars as
they progress through the leveling-up process.
According to SCVNGR founder Seth Priebatsch,
“LevelUp is a new type of location-based interaction. It combines the
best parts of the check-in, the challenge, and the reward into one bite-sized unit”.
docTrackr, also based in Cambridge, helps businesses keep their
documents safe and under control, no matter where they are stored or
whomever they are shared with. Users can remotely destroy, update, and track
changes and sharing in real-time.
CoachUp is a venture-funded start-up company that connects athletes
with private coaches. With thousands of coaches across the country, and
hundreds of training sessions happening every day, they are the
nation’s leading private coaching company. The CoachUp team is
comprised of both athletes and coaches, including founders Jordan Fliegel and Arian Radmand.
The greater Boston area, especially Cambridge, is host to large
biotechnology industry. Most of the biotech start-ups in the
region appear to be focused on pharmaceutical and biotech drug
discovery, such as:
Medicine: Editas Medicine is a discovery-phase pharmaceutical
company based in Cambridge, which aims to develop therapies based on
CRISPR-Cas9 gene editing technology. CRISPR is a dynamic, versatile
tool that can target nearly any genomic location and potentially repair
Therapeutics: Modern Therapeutics is a Cambridge-based RNA
therapeutics company seeking to battle disease by stimulating the
body to make its own treatments. More specifically, it’s using
messenger RNA to stimulate protein growth. For example, stimulating
regrowth of heart cells after a heart attack, or stimulating the growth
of a protein that would kill cancer cells. The company currently has 16
ongoing research programs, eight of them with AstraZeneca and two of
them with Alexion.
T2 Biosystems: Located in Lexington, T2 Biosystems has developed
a technology that provides faster and more accurate diagnosis of
infectious diseases in hospitals. The diagnostics technology is part
medical device, part biotechnology and part software algorithm.
Advanced Manufacturing Start-Ups
The Greater Boston region has a thriving advanced manufacturing
industry. This industry includes an intricate network of collaborative
relationships between industry, government and education. It is here
that exists a high concentration of innovative firms that interact with
each other to advance design and production methods. These industry
clusters include the following subsectors:
- Signal processing,
navigation, optics, and measurement
- Medical devices and
- Semiconductors and
- Precision machining
The rapidly accelerating rate of technological innovation is changing
the environment in which advanced manufacturing exists. Three
disruptive technologies have emerged that could significantly change
the advanced manufacturing industry: 1. Digital design and prototyping
2. Additive manufacturing and 3. The Internet of Things (IoT).
This kind of advanced manufacturing has spurred talk
of a U.S. manufacturing rebirth. In 2012, President Barack Obama
announced a billion-dollar initiative to support it, noting 500,000
manufacturing jobs added in the previous two years. Hillary Clinton
uses the phrase, “advanced manufacturing” regularly. President Donald
Trump also uses the phrase as part of his “Make America great again”
campaign. Some advanced manufacturing start-ups in the region are
Inc.: Uniquarta is a Cambridge-based manufacturer of
semiconductors and other electronics. They manufacture flexible,
silicon chips that are 5 to 10 times thinner than normal. These devices
have a number of advantages over conventional electronics, including:
- Ability to conform to
the shape of their host structures
- Ability to be embedded
or placed where rigid circuit boards cannot
- Reduced size and weight
- More rugged and durable
- More environmentally
- Reduced cost
Tulip Products, based in Somerville, Massachusetts, is a technology
company that helps transform the manufacturing process by bringing the
latest technological advances from the lab to the shop floor. Tulip
combines data streams from sensors, existing shop floor equipment and
operator inputs in real-time to help manufacturers increase efficiency
Boston is considered to be one of the world’s leading robotics
centers. Spending on robotics worldwide is expected to reach $65
billion by 2025, from $15 billion in 2010, according to the Boston
Consulting Group, a management consulting firm.
Empire Robotics: Empire Robotics is a Boston, Massachusetts
based robotics manufacturer. The start-up company specializes in
flexible robotic end-effectors that leverage the jamming phase
transition of granular materials. Founded in 2012, Empire's team of
soft robotics experts, materials scientists, and experienced automation
engineers serve diverse technology fields including agile manufacturing
automation and collaborative robotics. Across a broad range of
applications, Empire's products enable secure grasping and manipulation
of widely varying objects with a single inexpensive tool.
Detectors: Cambridge, Massachusetts based robotics
start-up company, Silverside Detectors, employs a staff of nine, one
physicist, five engineers, two business people and one assembly worker.
The four year old start-up is putting together devices that can flag
the presence of a nuclear bomb. The company promises to deliver highly
sensitive detectors at a low price. They keep spending down by
doing everything, from assembly to testing, on their own. Silverside
performs in-depth quality testing of every single product coming off
the line in its Cambridge office. This is precisely the type of
activity that the R&D Tax Credit aims to incentivize.
Located in Cambridge, Massachusetts, Vecna is a robotics logistics
company. Its robots include the "BEAR" (or Battlefield
Extraction-Assist Robot), the QCBot, which is being used to deliver
medication to patients and VGo, a telepresence robot technology
acquired by Vecna last year.
The Boston area is one of the prime innovation hubs in the
nation. Common innovative start-ups there include software
developers, mobile-app designers, manufacturers, robotics companies and
more. New R&D Tax Credit legislation is aimed particularly at
start-ups who may be eligible for both Federal and State R&D Tax
credits which can now be used to offset payroll taxes.