For software companies, even the smallest and most inconsequential of endeavors can mean large savings in the form of tax credits.

Both software companies and firms that create software for their internal use often miss out on millions of dollars in savings each year, because they do not realize how many of their activities qualify them for R&D tax credits.

A company is performing qualified R&D if it is developing software for sale or for use by its customers, or providing customers the capability to remotely interact and/or initiate certain functions.

Examples of qualified activities include:

  • Developing software whose primary purpose is to be commercially sold, leased, licensed, or otherwise marketed to third parties.
  • Platform design and testing.
  • Coding.
  • Database management techniques.
  • Modeling and algorithm development.
  • Writing code to adapt, customize, and/or integrate an ERP system into a customer’s manufacturing environment.
  • Development of e-commerce sites that allows third-party interaction.
  • Developing an internal-use software system to reduce cost or improve efficiencies that are economically significant.

Startup companies can now use R&D credits to offset payroll taxes!

In tax year 2016, Qualified Small Businesses (startups) became able to offset the Employer portion of the FICA segment of their payroll taxes using R&D tax credits. These credits can be applied against quarterly payroll tax payments, beginning in the calendar quarter following the filing of the federal tax return. In any given year, the maximum payroll tax offset allowed is $250,000. This significant positive change to the tax code that gives startup companies an immediate cash benefit.

BRS’s team of professionals has over 25 years of experience and expertise, and can work with you to develop a clear and accurate history of your development efforts, capture all eligible costs, broaden the scope of qualifying activities when appropriate, and prepare the documentation you need to maximize the money you are eligible to claim.


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