Software companies typically engage in qualified research when developing functional software applications, enhancements, and solutions customized to each customer’s specifications for fixed-fee projects. Each project possesses different sets of technical uncertainties and risks. Examples include the recurring uncertainty of which variables will be present in the developed tools and applications, and whether creating a functional program or feature is even feasible. Generally, the largest includable expense for software companies’ R&D Tax Credits are the wages of internal employees such as software architects, systems engineers, Chief Information Officers and business systems analysts.
Success Story: Start-up Software Company
A Georgia start-up software company developing a new software-as-a-service platform engaged McGuire Sponsel to claim the R&D credit on an originally filed return. The company did not have revenue during the tax year and wanted to utilize the credits to offset payroll tax in accordance with Code Section 41(h). After conducting interviews and analyzing project data and documentation, McGuire Sponsel calculated over $1.2M in qualified research expenses for the study year. This resulted in a federal credit of $130k and a Georgia credit of $130k, both of which were used to offset payroll tax liability for the company.
Success Story: Cyber-security Firm
McGuire Sponsel assisted a cybersecurity firm specializing in creating software that assesses security vulnerabilities to claim the R&D credit for an originally filed return and the previous year return. McGuire Sponsel conducted on-site fieldwork to determine which projects and activities met the criteria set forth in Code Section 41. Due to the growth of the company, McGuire Sponsel professionals were able to calculate over $1M in qualified research expenses over the two-year time-frame, which resulted in over $120k in federal credits and $87k in Indiana credits.