Technology companies are among the most easily qualified business for the R&D tax credit. Essentially, in technology, most actions that an employee takes towards a project are rooted in science and go towards resolving technical uncertainties. Often, the projects that qualify for the tax credit involve the creation of new or improved software or computer code. In fact, the Internal Revenue Code specifically lists the creation of computer software as a qualified business component.
There is a level of technical uncertainty inherent in most technology projects. At the outset of the project there may be uncertainties as to the capability of the company to develop a program or application with the required specifications, the method the company will use to develop the program or application, including the required programming languages and testing methods, or the ultimate design of the program or application. The ways that a technology firm overcomes these uncertainties are the focus of an R&D tax credit study. For example, the following activities may qualify for the R&D tax credit:
These activities require careful analysis, calculation, the consideration of several alternatives, and an iterative process of trial and error. This is what is known as a process of experimentation and is the focus of qualifying technology firms for the R&D tax credit. What companies learn through this process, helps resolve the uncertainties based on capability, methodology, and ultimate design.
Regardless of the type of technology your firm develops, you could be missing out on a lucrative tax incentive if you are not currently claiming the R&D tax credit. Contact Parachor to find out how.