Best Practices: What Software Activities Qualify for the R&D Credit?

MASSIE answers:

Generally speaking, qualifying activities for the R&D credit are those that are innovative in nature and further develop or improve a product or process. Qualifying activities for software are no different! Below are some examples of qualifying and non-qualifying activities that might apply to software products or processes.

Software – Qualifying Activities

• Technical discussions or meetings to advance new features, product development, or other product/feature improvements
• Design for new or improved products, features, tools, or algorithms
• Development of functional or technical specifications, use requirements, proof of concept, calculations, modelling, analytics, etc.
• Coding and testing for development (e.g., proof of concept, prototypes, etc.)
• Direct supervision of US based employees performing activities listed above
• Direct support of activities listed above (i.e., providing input as to functional or technical specifications, test plans, design roadmap, use scenarios, and requirements definitions)

Software – Non-Qualifying Activities

• Customer technical support or helpdesk
• Post-release bug-fixes, detecting flaws, and maintenance
• Software application configuration
• Performing studies to select vendor products
• Modifying existing software to meet standards or be compliant
• Upgrading to newer versions of hardware or software, or installing vendor fix releases
• Re-hosting or porting an application to new hardware or software platform, or rewriting existing application to new language
• Writing hardware device drivers
• Data quality, data cleansing, and data consistency activities
• Bundling software into product suites
• Migration of customers from one software product to another
• Designing Graphical User Interfaces (“GUI”) –  focus is more cosmetic (where data items and graphics should be displayed on screen), and does not involve software development uncertainty
• Development of software utility programs, such as debuggers, backup systems, performance analyzers and data recovery (although, there can be exceptions)
• Time spent working outside the US
• Other non-R&D related matters (e.g., HR, management, budgeting, marketing, customer relations, training, 2^nd level and above management, etc.)

Please contact the MASSIE team if you want to discuss this topic further or require assistance with your calculations.

Disclaimer: The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation.