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Illinois offers a state R&D tax credit for businesses investing in innovation, with no geographic restrictions and no pre-approval process required. For Illinois businesses already claiming the federal credit, the state credit stacks directly on top, making it one of the more straightforward ways to capture additional value from research that's already happening.

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Illinois R&D Tax Incentives at a Glance

Illinois Research and Development Credit:

  • Credit based on the increase in qualified research expenses compared to a three-year average baseline
  • Available statewide, with no geographic restrictions and no pre-certification or pre-approval required
  • Non-refundable; offsets Illinois income tax liability, with unused credit carried forward for up to five years
  • Open to corporations, S corporations, partnerships, and LLCs conducting qualifying research in Illinois
  • For businesses in their first year of R&D spending with no prior baseline, a simplified calculation applies
  • Currently authorized through tax years ending before January 1, 2032; legislation is pending that would make the credit permanent

Federal Benefits:

  • Available for all qualifying U.S. research
  • Payroll tax offset option for eligible startups
  • Stackable with Illinois's state credit on the same qualifying expenses

Key Distinction:

Illinois's credit is available across the entire state with no zone or district requirements. There is no application or certification step before you start, which means businesses can begin building eligible expenses right away and claim the credit when they file. Businesses should confirm the current program status with a tax advisor when planning multi-year R&D investments, as legislation to make the credit permanent is currently pending.

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Who Qualifies for Illinois's R&D Tax Credit?

Business Type 

The credit is available to C corporations, S corporations, partnerships, and LLCs conducting qualifying research in Illinois. Pass-through entities do not use the credit at the entity level; instead, it flows through to owners, who claim it on their individual returns based on their ownership share.

Il R&D Tax Credits

Developing New or Improved Business Components

You are creating or substantially enhancing a product, process, computer software, manufacturing technique, formula, or invention.

Technical Nature Required

Your activities fundamentally rely on engineering, computer science, physical sciences, biological sciences, or chemistry.

Technological Uncertainty Exists

You face genuine technical questions about capability, methodology, or appropriate design, not just commercial uncertainty about market acceptance.

Process of Experimentation Used

You are systematically evaluating alternatives through modeling, simulation, prototyping, trial-and-error testing, or iterative refinement.

What Research Activities Qualify in Illinois?

Illinois uses the same federal standards to define qualifying research. If your work qualifies under the federal four-part test, it will generally qualify for the Illinois credit as well, as long as the work was performed in Illinois.

The practical implication for multi-state businesses is that expenses need to be tied to specific locations. Research conducted in Illinois counts; research conducted elsewhere in the same project does not. For companies with employees or contractors working across state lines, tracking where research activity occurs is an important part of building a supportable claim.

What Expenses Qualify for Illinois's R&D Tax Credit?

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Wages and Salaries

Employees directly conducting, supervising, or supporting qualifying research performed in Illinois

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Supplies

Materials consumed during the research process in Illinois

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Contract Research

A portion of amounts paid to third parties performing qualifying research in Illinois

Illinois follows the federal definition of qualified research expenses, limited to costs tied to work performed within the state.

R&D Credits for Illinois Industries

How Qualifying Research Looks Across Illinois's Key Sectors

Agriculture and Food Processing

New cultivation techniques, crop improvement technologies, food processing innovations, or precision agriculture tools developed through technical research

Chemicals and Materials

New compound development, formulation science, materials testing, or process chemistry improvements through controlled experimentation

Transportation and Logistics Technology

Custom routing systems, fleet management software, autonomous vehicle technology, or supply chain optimization tools developed through iterative technical work

Advanced Manufacturing

New production processes, automation systems, materials improvements, or equipment innovations developed through engineering and systematic testing

Life Sciences and Biotechnology

Drug formulation, biologics development, medical device engineering, diagnostics, or laboratory-based research conducted through systematic experimentation

Software and Technology

New software platforms, data systems, cybersecurity tools, or algorithm development through iterative technical development and testing

Clean Energy and Sustainability

New energy storage technologies, grid systems, emissions-reduction processes, or clean manufacturing innovations developed through engineering and experimentation

Florida Claim Previous Credits

Federal R&D Tax Credit for Illinois Businesses

Illinois ties its state credit calculation closely to federal base period data, which means the state and federal credits are more intertwined in Illinois than in some other states. Businesses claiming the Illinois credit should work with a tax advisor to confirm how the two calculations interact for their specific situation, and to make sure the documentation built for one claim fully supports the other.

The two credits can be claimed on the same qualifying Illinois expenses, allowing businesses to benefit at both the state and federal level simultaneously. With recent federal law changes restoring immediate expensing of domestic R&D costs, Illinois businesses now have the opportunity to capture a current-year deduction alongside both the state and federal credits on the same research investment, which can meaningfully improve the overall cash benefit of R&D spending.

How to Claim Illinois's R&D Tax Credit

Step 1:

Track Qualifying Research Activity Throughout the Year

Illinois requires no pre-approval, but the documentation you build during the year is what supports the credit if your return is ever reviewed. Identify which projects and employees are involved in qualifying work, and keep records of how time and expenses are allocated to Illinois-based activities.

Step 2:

Calculate the Credit on the Appropriate Schedule

When preparing your Illinois income tax return, calculate the credit using the Research and Development Worksheet in Schedule 1299-I, and report it on Schedule 1299-D (for corporations and fiduciaries) or Schedule 1299-A (for partnerships and S corporations). The credit equals the increase in qualifying Illinois research expenses over your prior three-year average.

Step 3:

File with Your Illinois Income Tax Return

Attach the completed schedule to your Illinois income or franchise tax return. No additional applications or certifications are needed. Any credit that exceeds your current-year Illinois tax liability carries forward for up to five years.

What Records Should You Keep?

Project-Level Descriptions:

Maintain descriptions of each qualifying research project, the technical challenges being worked through, and how your team approached them. Documentation should clearly connect specific activities to Illinois-based work.

Payroll and Time Records:

Keep payroll records and time-tracking data for employees involved in qualifying research. For businesses with employees working across multiple states, records showing where research activity physically occurred are essential, since only Illinois-based work counts toward the state credit.

Expense Records:

Retain receipts and invoices for supplies used during research activities, along with contracts and payment records for any third-party research conducted in Illinois. These records should be kept through the applicable audit period and are the foundation of any defensible credit claim.

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Estimate Your R&D Tax Credit in Minutes

Find out how much your innovative work could earn back in tax credits. Use our quick calculator to estimate your potential savings — no forms, no hassle.

CALCULATE YOUR CREDIT

Saving Money, Spurring Innovation

Every day, companies nationwide further the mission of innovation with new products, processes and initiatives that change the landscape of how we do business. But innovation takes funding, and with that comes a vicious cycle: You need money to grow your business and develop your products and services… but you also need to do those same things to bring money in.

That’s why R&D tax credits were established. Designed to encourage companies like yours to invest in the innovation, creation and improvement of products or processes, R&D tax credits can offset some of the costs associated with research and development — fueling growth and technological advancement.

Pitfalls Illinois Businesses Should Avoid

Not tracking the five-year carryforward window

Illinois's credit carries forward for only five years. Businesses that consistently generate more credit than they can use against their current tax liability need to monitor carryforward balances and plan accordingly. Credits that aren't used within five years are lost.

Including out-of-state research expenses

Only research conducted in Illinois counts toward the state credit. Businesses with employees or contractors working across state lines need to track research locations carefully. Expenses tied to out-of-state work don't qualify, even if the same project generates a federal credit.

Assuming pass-through entities can use the credit at the entity level

S corporations and partnerships do not pay Illinois income tax at the entity level, so the credit flows through to individual owners rather than being used by the business itself. Owners need to be aware of how their share of the credit is reported and applied on their personal returns.

Overlooking the credit in years with no prior R&D history

Businesses claiming the credit for the first time with no prior research spending benefit from a favorable calculation: without a prior baseline, the full amount of current-year qualifying expenses may factor into the credit. First-time claimants sometimes assume the credit isn't worth pursuing without an established history, but the math can work in their favor.

Can You Claim Credits for Previous Years in Illinois?

Yes. Illinois generally allows amended returns for prior tax years, which means businesses that conducted qualifying research in past years without claiming the credit may still have an opportunity to recover it. A tax advisor can help you determine how far back you can look and whether the open years are worth pursuing.

The federal R&D credit is also available on amended returns for open tax years. For Illinois businesses that have been innovating for years without claiming either credit, a combined review of state and federal open years can identify meaningful value that hasn't yet been captured.

WA state R&D lookback window

Watch our latest videos to learn more!

Confused about whether you qualify or how the credits work? Our videos break it all down for you.

Claiming the R&D tax credit can provide significant tax savings, but proper documentation is key to ensuring compliance and maximizing your benefits. Without the right records, your claim could be denied or flagged for an IRS audit. In this video, we’ll cover best practices for R&D tax credit documentation, including: ✅ How to maintain detailed project records ✅ Tracking employee time on R&D activities ✅ Organizing financial records of qualifying expenses ✅ Documenting experiment results and decision-making A well-organized documentation system not only supports your R&D credit claim but also improves overall business operations. Don’t wait until tax season—stay prepared year-round! 💡 Need expert guidance? James Moore’s tax professionals can help ensure your records meet IRS standards and maximize your claim. Contact us today! 🔹 Subscribe for more tax-saving strategies! 🔹 Like & share this video to help others optimize their R&D tax credits! #RDTaxCredit #TaxSavings #ResearchAndDevelopment #RDDocumentation #TaxPlanning #IRSCompliance #SmallBusinessTax #StartupFunding #BusinessTaxes #CPAFirm #TaxCredits #BusinessGrowth #TaxTips #FinancialPlanning #IRSRecords #AuditPreparation #JamesMooreCPA #AccountingAdvice #MaximizeTaxCredits #RDFunding #IRS MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC4xMkVGQjNCMUM1N0RFNEUx
Unlock R&D tax credit savings and reduce your payroll tax liability! Did you know that eligible startups and small businesses can use the R&D tax credit to offset up to $500,000 in payroll taxes annually? If your business isn’t yet profitable, this can be a game-changer—helping you monetize tax credits sooner and improve cash flow. What qualifies? Activities like developing new or improving existing products, processes, or software may be eligible, along with associated costs such as wages, supplies, and contractor expenses. But the election must be made on originally filed tax returns, so timing is critical! At James Moore, we simplify the R&D tax credit process, ensuring you maximize benefits while staying compliant. Don't leave money on the table—reach out today to see how we can help you claim these valuable credits! #RDTaxCredit #PayrollTaxOffset #SmallBusinessTaxSavings #StartupTaxCredits #TaxIncentives #ResearchAndDevelopment #TaxPlanning #BusinessGrowth #StartupFunding #Innovation #TaxDeductions #IRS #AccountingTips #Entrepreneurship #TaxCredits #TaxStrategies #FinancialSuccess #TechStartup #Manufacturing #BusinessTaxPlanning #JamesMooreCPA MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC4wOTA3OTZBNzVEMTUzOTMy
Join R&D tax credit expert Lucia Valenzuela as she breaks down some of the biggest myths surrounding the R&D tax credit! Many believe it’s only for large corporations or tech giants, but in reality, businesses of all sizes and across various industries—like agriculture, manufacturing, and food & beverage—can qualify. Think you need a dedicated R&D department? Think again! Lucia explains why even smaller teams, including engineers and developers, often qualify for this valuable credit. And if you’re concerned about the complexity or IRS audits, she’s here to clear up the confusion and show you how, with the right guidance, claiming these credits can be straightforward. At James Moore, we make the R&D tax credit process simple, ensuring you maximize the benefits you’re entitled to. Don’t miss out on potential savings—let’s talk about how we can help! MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC41MjE1MkI0OTQ2QzJGNzNG
Unlock significant tax savings for your business with the R&D Tax Credit! 💰 Many business owners aren’t aware they may qualify for this valuable federal incentive, which is designed to encourage innovation. Whether you’re developing new products, processes, or software, the R&D tax credit offers a dollar-for-dollar reduction on eligible expenses, such as wages, supplies, and certain contract research costs. But how do you know if your activities qualify? The IRS uses a four-part test: 1. Permitted Purpose – Your project should improve or create a product, process, or technique. 2. Elimination of Uncertainty – Your work must tackle technical uncertainties. 3. Process of Experimentation – Testing and trial methods should be part of your process. 4. Technological in Nature – The project must rely on scientific principles, like engineering. From software companies optimizing applications to startups experimenting with autonomous technology, the R&D credit can support your innovative efforts—even if these innovations are new only to your business! Curious if you qualify? Contact James Moore’s R&D tax specialists today to see how we can help you document your efforts and maximize your credit. MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC4wMTcyMDhGQUE4NTIzM0Y5
Licensed tax attorney and Chief Innovation Officer Lucia Valenzuela explains how your business can benefit from valuable R&D tax credits. These government incentives reward innovation, helping you reinvest in your company's growth through product development, process improvements and more. With years of experience and a proven track record, Lucia and the James Moore team are here to simplify the process and maximize your credits. Discover how you can unlock these benefits and fuel your company's future! MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
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Ready to Maximize Your Illinois R&D Tax Credits?

Illinois's R&D credit is one of the more accessible state programs available, with no pre-approval process and a structure that works for businesses at many different stages of growth. Whether you are claiming the credit for the first time, reviewing open prior years, or building a long-term strategy that combines state and federal benefits, our team can help you identify what's available and make sure your claims are well-supported.

Frequently Asked Questions

Does my business need to be in a specific part of Illinois to qualify?

No. Illinois's R&D credit is available statewide with no geographic restrictions. There are no zones, districts, or special designations required. As long as your qualifying research is conducted within Illinois, your location in the state does not affect eligibility.

How is the credit calculated?
Can I claim both the Illinois credit and the federal R&D credit?
How long is the Illinois R&D credit available?
What if my business has not claimed the credit in prior years?

Access the Latest Illinois R&D Tax Credit Information and Filing Requirements

Illinois Schedule 1299-I

Income Tax Credits Information and Worksheets

View Guidance

Illinois Schedule 1299-D

Income Tax Credits (Corporations and Fiduciaries)

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Illinois DCEO

Business Incentives Overview

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IRS Form 6765

Federal R&D credit form and instructions

Download Form

IRC Section 41

Federal law defining qualified research activities

View Statute

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Lucia Valenzuela

Chief Innovation Officer (CInO)

Lucia is the driving force behind the adoption of new technologies and services at our firm. She stays up to date on advancements and works with firm leadership to develop and implement strategic plans that align with our goal of enhancing the client and employee experience.

Lucia brings to James Moore a decade of experience and forward-thinking leadership in technology, public accounting and tax law matters. A trusted advisor in the field of R&D tax credits, she has successfully guided thousands of companies through the complexities of filing for that credit. Her other notable achievements include the market launch of revolutionary tax software and building a large specialty tax practice at a top 50 accounting firm.

Lucia’s knowledge of technology, strategic partnerships, teambuilding, public accounting and tax law provides our firm with a new and unique perspective on client service and operations. Outside of James Moore, Lucia is active in local bar associations and their respective boards. She also volunteers with Project Youth, Step-Up and other organizations focused on mentoring and empowering underprivileged youth in their journeys toward college.

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John VanDuzer, CPA

Partner

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Kris Hutchins, CPA

Client Service Director

This information serves general educational purposes and does not constitute tax, legal, or accounting advice. Illinois's R&D tax credit program, including credit rates, carryforward periods, eligibility requirements, and program authorization dates, is subject to change by the Illinois General Assembly and Department of Revenue. The credit is currently authorized through tax years ending before January 1, 2032; legislation that would make the credit permanent is currently pending. Businesses should confirm the current program status before making long-term planning decisions based on the credit. Federal R&D credit information reflects law as of February 2026. Consult qualified tax professionals before making decisions based on this information.

Last Updated: February 2026
Next Review: Quarterly or upon state or federal legislative or administrative changes