Introduction
If your Texas startup invests heavily in R&D, there’s a little-known tax strategy that could cut your franchise tax burden significantly in 2025: the “Double Weighting” Election for research expenses.
Texas allows certain taxpayers to double-count qualified R&D expenses in the cost-of-goods-sold (COGS) deduction for margin tax purposes. Let’s break down when and how this helps—and who qualifies.
Tax Code References
- Texas Tax Code §171.1012(k) – COGS deduction and election
- Texas Tax Code §171.654 – R&D credit criteria
- Texas Admin Rule 3.590 & 3.599 – Franchise tax rules
- IRC §41 – Federal research credit definition (used for TX alignment)
What Is the Double Weighting Election?
This election allows a business to include 200% of qualifying research expenses in their COGS deduction.
This reduces taxable margin and potentially lowers franchise tax liability—especially for early-stage or unprofitable tech startups.
Note: You cannot claim both the double deduction and the TX R&D franchise tax credit for the same expenses.
Example: AI Hardware Startup in Austin
Example: NexGen Robotics has:
- $1.5M in TX revenue
- $600K in eligible R&D payroll and materials
- Normally deducts $600K as COGS
With the double weighting election, they deduct $1.2M instead—lowering their margin to $300K, resulting in a smaller tax bill or potentially falling under the no-tax-due threshold.
Step-by-Step: Making the Election (2025)
- Identify Qualifying R&D Expenses
Use IRC §41 definitions—payroll, supplies, software dev, etc. - Maintain Substantiation
Keep time logs, engineering notes, W-2s, invoices, and designs. - File the Election on TX Franchise Return
Make the election on Form 05-158 or Webfile under the COGS section. - Do Not Claim R&D Tax Credit on Same Costs
You must choose: credit or deduction, not both. - Retain Documentation in Case of Audit
Texas Comptroller may review cost allocation and qualifications.
Conclusion
The double weighting election is a powerful but underutilized lever for Texas tech companies, especially those investing in innovation but not yet profitable.
If you’re running an AI, biotech, SaaS, or robotics business—this could be the move that drops you below the tax threshold.
Call to Action
Curious if your startup qualifies for the double weighting R&D strategy?
Schedule a 1-on-1 consultation with Anshul Goyal, CPA, EA, FCA to:
- Analyze eligibility for double weighting
- Compare it against TX R&D franchise tax credit
- File your franchise report correctly in 2025
Lower your tax liability without waiting for profitability.
https://calendly.com/anshulcpa/
About Our CPA
Anshul Goyal, CPA, EA, FCA
Anshul brings 15+ years of U.S. and international tax experience. He specializes in helping online sellers, foreign founders, and U.S. residents with IRS and multi-state compliance. Known for his deep knowledge in Shopify and Amazon seller tax strategy, Anshul has helped hundreds of entrepreneurs minimize taxes and scale legally.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional regarding your individual tax situation.
Top 5 High-Searched FAQs (2025)
1. What is the Texas double weighting election?
A strategy allowing 200% deduction of qualified R&D expenses in COGS.
2. Can I claim the TX R&D credit and the double deduction?
No. You must pick one per expense set.
3. What expenses qualify for R&D under TX rules?
Payroll, prototyping, software development, materials, and research supplies.
4. Where do I report the election?
On Form 05-158, Texas Franchise Tax Report (COGS section).
5. Is this only for tech companies?
Mostly, but any TX company with valid R&D spending may qualify.