Technology companies can and do qualify for valuable tax credits and incentives, such as the R&D tax credit. However, in today’s advanced technological world, the lines are a little blurred when it comes to truly qualifying as a “technology” company.
In terms of qualified research activities and their associated expenses, to claim the R&D tax credit, you only need to take a broad definition of what a technology company consists of: any company where the primary product is some kind of technology, including software and hardware.
With this broad definition, technology companies are highly likely to spend heavily on software or hardware research and development activities to create new or improved products.
Here are the top 10 qualified R&D activities that technology companies – perhaps just like yours – often perform:
1. Researching new concepts for future hardware products
2. Designing and developing prototypes for new products
3. Experimental coding for new or improved software products
4. Developing a new manufacturing process for new products
5. Performing QA alpha or beta testing on experimental products
6. Designing artificial intelligence assets for new video games
7. Developing a new user interface (UI) for electronic control systems
8. Incurring third-party software engineer expenses to create new software
9. Developing a patentable design for new search engine technologies
10. 3D printing activities for new hardware designs
If your company is involved in any of these qualified R&D activities, you are eligible to claim R&D tax credits.
Software and hardware development is often seen as the work of an in-house engineer who builds out the technology. However, a large portion of what constitutes a qualifier for R&D tax credits is employee wages or third-party contract expenses connected to the work involved in developing new tech products.
The truth is, these are only the top 10 qualified R&D activities that most technology companies are partaking in. Many activities, such as associated expenses for the involvement of executives or third-party developers, are often overlooked.
The best thing you can do is gather the right documentation to support your R&D tax credit claims. Documentation and eligibility have inherent complexities, so it’s important to consult with a tax expert that fully understands the process for capturing R&D credits.
Ready to learn more about your qualifying research expenses for R&D tax credits? Download your complimentary, educational guide below.
