Short answer. The Alternative Simplified Credit (ASC) is one of two ways to compute the Section 41 R&D credit, under Section 41(c)(5). It equals 14 percent of current-year qualified research expenses above 50 percent of the prior three years' average, and it is the method most startups use because it needs no 1980s base-period data.
How the ASC is calculated
Section 41(c)(5) defines it in one formula.
The Alternative Simplified Credit equals 14 percent of the amount by which your current-year QRE exceeds 50 percent of your average QRE over the three preceding tax years.
A worked example: $500,000 of QRE this year, with a prior three-year average of $200,000. Half of $200,000 is $100,000. The credit is 14 percent of ($500,000 minus $100,000), or 14 percent of $400,000, which is $56,000.
The math rewards growth in research spending. A company spending more this year than its recent average gets a larger base, which is the common shape for a scaling startup.
The first-time rate
A company with no recent research history uses a lower rate.
If you had no QRE in any of the three preceding tax years, the ASC is 6 percent of current-year QRE instead of the 14 percent formula. A first-year company with $500,000 of QRE gets a $30,000 credit.
Once you have prior-year QRE to compare against, you move to the 14 percent formula in the following years.
Choosing the ASC over the regular method
You can compute both and elect the one that produces the larger credit.
The regular method needs a fixed-base percentage built from gross receipts and research spending in the 1980s, data most modern companies cannot reconstruct. The ASC needs only your last few years, which is why most startups elect it.
The election is made on Form 6765 Section B and is an annual choice. R&D Binder computes your QRE per business component, the figure both methods are built on, so your CPA can run the comparison.
Related Section 41 references
The ASC is computed on QRE and claimed on Form 6765; these cover both:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- 26 U.S.C. § 41(c)(5), alternative simplified credit - Cornell Law School, Legal Information Institute
- IRS Form 6765 instructions (rev. December 2025), Section B - Internal Revenue Service
- Treas. Reg. § 1.41-4, qualified research expenses - Cornell Law School, Legal Information Institute
Get documentation built to survive an exam
R&D Binder computes your QRE per business component, the figure the Alternative Simplified Credit is built on, and hands your CPA a workpaper that ties to Form 6765 Section B.