R&D Tax Credits for Startups and the Software Development Industry

It’s not just for large corporations and enterprises… tech startups are highly encouraged to claim for this government benefit.

Hey all you founders and entrepreneurs, take note! Many software development companies are eligible to claim the R&D Tax Credit for startups due to the inventive nature of the industry.  Yet, many miss on out these highly valuable credits due to lack of awareness.

The Research & Development (R&D) Tax Credit was originally set up by the U.S. government to compete with the latest and greatest research and inventions of the world and thus had to invest in developments to do so. With its initial success, Congress renewed the research credit time and time again, finally making it permanent in 2015.

Understanding the qualifying activities and related expenses of the R&D Tax Credit law is the key to yielding an accurate and comprehensive amount of credits for your software company.   

Software companies are often viewed as ideal candidates for the R&D Tax Credit because of the nature of their research and activities, with potential qualifying job titles including Director of Software Engineering, Programmer, Software Analyst, Software Developers, and more. 

The tax benefits for software companies can provide the necessary cash to hire more employees, expand production facilities, and increase research and development initiatives.

The bulk of your developers’ time most likely qualifies, but first, we’ll cover re few activities that do not qualify per the IRS Form 6765:

  • Research adapting an existing product or process to a specific customer’s need
  • Duplication of an existing product or process
  • Surveys or market studies
  • Any activities conducted outside the United States
  • Research in the social sciences, arts, or humanities
  • Research funded by another person or entity, including foreign government
  • Routine maintenance and support (bug fixes)

And now on to the good stuff: the many qualifying activities you and your employees may be involved in, even day-to-day:

  • Developing new or improved technologies
  • Compiling, programming, and/or testing software source code 
  • Designing and developing structural software architecture
  • Conducting requirements, domain, software elements, or scope analysis for a new functional software enhancement
  • Evaluating and establishing functional specifications
  • Conducting unit, integration, functional, performance, and regression testing

Many startups don’t have the luxury of a finance team or dedicate precious time and resources to uncover these credits.   That’s where Rebate comes in.  

Whether you’re sure you qualify or not, now is a great time to contact us or use our R&D tax credit software (I.e. our simple calculator tool) to take the next step in claiming your company’s credits.