R&D Tax Credit for Software Companies
Software development is one of the most overlooked R&D Tax Credit categories. If your engineers are building new platforms, developing algorithms, or solving technical problems through iteration — you're doing qualifying R&D.
Why Software Companies Miss This Credit
Many software companies assume the R&D Tax Credit is for hardware companies or biotech firms. Others assume their work is "just coding" and doesn't rise to the level of qualifying research.
Both assumptions are wrong. The IRS explicitly includes software development as a qualifying activity under IRC §41. If your engineers are developing new functionality, solving technical problems through iteration, or building systems where the outcome was uncertain when they started — that's qualifying R&D.
Cloud computing costs qualify too: AWS, Azure, and GCP costs used directly in development and testing can count as supply expenses — a category most software companies never consider.
Qualifying Activities in Software Development
What Doesn't Qualify in Software
Not all software work qualifies. The IRS excludes:
Roles That Typically Qualify
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Real-World Examples
New Platform Development
A SaaS company builds a new analytics platform from scratch. The engineering team designs the data pipeline architecture, tests multiple approaches for real-time processing, evaluates different database technologies, and iterates on the system based on performance testing.
WHY IT QUALIFIES
Technical uncertainty (would the architecture handle the required throughput?), systematic process (multiple approaches evaluated and tested), technological in nature (computer science). Qualifying R&D.
AI/ML Model Development
A software company develops a machine learning model to predict customer churn. The data science team tests multiple model architectures, evaluates feature engineering approaches, and iterates on training parameters until the model achieves acceptable accuracy.
WHY IT QUALIFIES
Technical uncertainty (which model architecture would work best?), systematic experimentation (multiple architectures and approaches tested), technological in nature (computer science, statistics). Qualifying R&D.
Custom Integration Development
A software firm builds a custom integration between two enterprise systems that have no existing connector. The team evaluates API capabilities, designs a data transformation layer, tests edge cases, and iterates on error handling based on production testing.
WHY IT QUALIFIES
Technical uncertainty (could the systems be reliably integrated?), systematic process (design, test, iterate), technological in nature (software engineering). Qualifying R&D.
Find Out What Your Software Company Is Owed
Free assessment. No fee if you don't qualify. Most software companies are surprised by what they find.