Software / Technology

Research and Development Tax Credits for Software / Technology Companies

Whether you are a start-up or an established company developing software or hardware technology, you very likely qualify for the powerful Research and Development Tax Credit. If you are paying employees or contractors that are designing and/or developing software or hardware technology product or developing/improving development processes, it would be wise to look into the credits you are eligible for.

Below are some examples of the expenditures and activities that qualify for the R&D tax credit.

Examples of qualifying expenditures:

  • Wages of individuals performing, supervising, or assisting r&d activities
  • Cost of materials consumed in the development of prototypes and new products
  • 65% of payments to outside consultants
  • Partnership earnings
  • Schedule C profits

Examples of qualifying activities:

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

An example of the R&D credit:

To give you an understanding of the power of the R&D credit, we will share an example. Company A , a B2B software company in Phoenix, Arizona, has 5 full-time software engineers and 3 full-time contract UI/UX designers. These engineers and designers spend 75% of their time working on developing/designing.

Company A pays an average salary of $85,000 to each. The total qualified expenditures that Company A can use for the software engineers they employ is $318,750, and $124,312 for the contract designers they work with.

The estimated state credit is $66,459, and the federal credit is $28,799, for a total of $95,258 for a single year.

We can help you claim the R&D tax credit

Our consultation costs you nothing. We will explain how the R&D tax credit works, gather some information about your company and give you estimates on what your federal and state credits could be.

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