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Technology & Software R&D Tax Credit
statistical data


2021 federal R&D credit of a software company with 22 employees


amount qualified startups can offset payroll taxes per year


average amount of development payroll that qualifies toward R&D credits

Technology & Software R&D Tax Credits

The IT sector’s capabilities are developing quite rapidly. For this reason, the question of what kind of project work qualifies for R&D tax credits becomes increasingly intricate and complex. In fact, one of the most difficult areas for R&D advisers and HMRC to define is software development.

In this regard, we need to address the question: “What R&D activities are eligible under the specific R&D law for Technology and Software companies?”.

Typical Technology and Software Qualifying Research and Development Tax Credits

For software firms of all sizes in virtually every industry, the R&D Tax Credit offers an opportunity to offset tax bills. Qualified Research Expenses (QREs) cover practically all phases of the Software Development Lifecycle (SDLC) as well as more tangible costs like R&D-related cloud server leasing expenses. For instance, a mid-size software company with sixteen employees could get a $160,000 tax credit in 2019.

Numerous states also provide tax advantages in addition to the federal credit. Companies in their early stages of development and start-ups with fewer than five years of income can use R&D tax credits of up to $250,000 to reduce future payroll taxes.

Software and technology sectors like AI, blockchain, cybersecurity, cryptocurrency, robotics, electronics, VR development, and FinTech have already claimed huge R&D tax credits. That left them with millions of dollars to spend on staff, infrastructure, and innovation.

Qualifying Activities:

  • Creating mobile applications

  • SaaS

  • Source code development, including AI and machine learning

  • Third-party application integration and customization (e.g., Salesforce)

  • Creating software for cloud integration

  • Evaluating and implementing functional specifications, such as UI/UX

Qualifying Costs

About 55% of total software development costs usually qualify for the R&D tax credit. You can claim employee salaries, consumables and raw materials, computer leasing charges, and third-party contractor expenditures made throughout the R&D process. For instance, job titles you could cover include back-end and full-stack developers, UX/Ui engineers, C-suite, software developers and engineers, data scientists, research analysts, QA/QC workers, and product managers.

Companies can now alter past years’ tax filings (going back three years), providing further financial rewards from tax refunds. If you are unable to use your R&D credits straightaway, the IRS enables you to carry them forward for up to twenty years.

When You Need Expert Help

Our tax experts work on a success-based pricing structure that allows companies in the software and technology sectors to collect R&D refunds and credits without any upfront costs. We provide comprehensive audit protection as well as a money-back guarantee. You can use the R&D Tax Calculator provided on our page to calculate your possible advantage.

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