The R&D Tax Credit: A Missed Opportunity for Pharmacies and Healthcare Businesses

When pharmacy owners hear “R&D tax credit,” they usually assume it only applies to large pharmaceutical companies or high-tech research environments, not day-to-day pharmacy operations.

That assumption costs real money.

In reality, many compounding pharmacies and healthcare businesses engage in qualifying research activities every year without realizing it. The issue is not a lack of eligibility. It’s a misunderstanding of what the credit actually applies to.

What R&D Really Means in a Pharmacy Setting

The R&D tax credit isn’t limited to breakthrough inventions. It applies to solving technical problems through trial and error.

For compounding pharmacies, this can include:

• Developing or refining compound formulations

• Testing alternative ingredients due to shortages or stability issues

• Adjusting delivery methods, concentrations, or preparation processes

• Troubleshooting compatibility, shelf life, or absorption challenges

For independent pharmacies and clinics, qualifying activities may include:

• Designing new workflows to improve safety, compliance, or efficiency

• Testing automation or technology integrations

• Developing new service offerings that require experimentation before scaling

If you faced uncertainty, tested multiple approaches, and adjusted based on results, that’s the core of what the IRS considers R&D.

These Credits Are Often Missed

Most pharmacy owners miss the credit for three reasons:

1. They assume it doesn’t apply to them. Many accountants don’t challenge this assumption, so the question never gets asked.

2. The work feels “routine” after the fact. Once a solution works, it’s easy to forget how much trial and error went into getting there.

3. Documentation isn’t captured correctly. Vague time tracking and generic job descriptions don’t tell the story the IRS expects to see.

The credit isn’t lost because the work didn’t qualify. It’s lost because the work wasn’t framed properly.

What Recent IRS and Court Guidance Tells Us

Recent IRS scrutiny and court cases reinforce a few practical lessons that matter for healthcare businesses:

• Who bears the risk matters. If your pharmacy absorbs the cost of experimentation, that supports eligibility.

• Routine work doesn’t qualify. But work done to resolve uncertainty does, even if it becomes routine later.

• Details matter. The IRS wants to see evidence of testing alternatives, not just compliance or standard operating procedures.

This isn’t about being aggressive. It’s about being accurate.

The Timing Matters Now

Recent tax law changes restored the ability to immediately expense certain research costs, reopening opportunities that were previously shelved. For many owners, this changes whether the credit is worth pursuing at all.

It also means prior-year returns may be worth revisiting.

In some cases, pharmacies can amend returns from the last three years and recover meaningful tax savings. This isn’t something to assume or promise. It’s something to evaluate carefully.

The Bottom Line

If your pharmacy or clinic has ever:

• Developed new compounds or processes

• Tested alternative methods when standard solutions didn’t work

• Invested time and payroll into solving technical or operational problems

Then the R&D tax credit may be worth a closer look.

At Medari Advisors, we evaluate opportunities like this as part of proactive tax planning, not as a standalone gimmick. Often, these opportunities surface during a comprehensive income tax review, when we can see the full picture.

It’s worth a conversation if this sounds even remotely familiar. That’s usually where overlooked opportunities start showing up.

If you have questions about this topic, speak with your CPA or accountant. And if you need guidance or a second opinion, you’re always welcome to contact us.