R&D Tax Credits for the Software Development Industry
Refunds are available for companies performing research within the Software Development Industry. The research credit provides dollar-for-dollar cash savings each year for companies performing activities related to the development of new or improved products and processes. These benefits could provide much needed cash to hire additional employees, increase R&D, expand production facilities, etc.
Many companies involved with software development are unaware that their efforts within designing and developing their products can yield a large amount of research credits. Examples of R&D activities related to the industry as well as potentially qualifying job titles are listed below.
Examples of Qualifying R&D Activities
- Alpha / Beta testing
- Application and platform design and testing
- Coding, programming, testing (e.g., functional, integration, user interface)
- Developmental cloud computing activities
- New architectures, new algorithms, or new database management techniques
- Software and hardware product development related to communication and interaction
- Specialized technology design (e.g., image processing, artificial intelligence, or speech recognition)
- System software development (e.g., operating systems, compilers)
Potentially Qualifying R&D Job Titles
- Director of Software Engineering
- Programmer
- Senior Technical Leads
- Software Analyst
- Software Developers
- Software Integration Engineers
AMT Offset
For tax years beginning after December 31, 2015, eligible small businesses (those with $50 million or less of gross receipts) may claim the research credit against AMT liability.
Up to $500,000 in Payroll Tax
Qualified start-up companies may elect to use up to $500,000 of the research credit against payroll taxes. The U.S. Treasury Department released new regulations regarding internal use software (IUS) and its eligibility for the R&D tax credit. The clarification around IUS, which is defined as software used in general and administrative functions, makes it possible for additional software developers who were involved in internal use software development to be included in the R&D tax credit incentives.
Estimate Your Benefits with our FREE Calculators
Use our calculators for an estimate of state and federal R&D tax credit benefits or to determine if you can offset payroll tax using the R&D tax credit. It's easy to use and free. If at any time you have questions, contact us. We are here to help you realize your maximum tax benefit.
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Research and Development Tax Credit Insights

Lawmakers Introduce Bill to Retroactively Fix R&D 174 Expensing
03/14/2025By Kevin Zolriasatain and Paul McVoy | Principals, Research & Development Tax Credits On March 10, 2025, a bipartisan group of lawmakers introduced the American Innovation and R&D Competitiveness Act of 2025 in the U.S. House of Representatives. The legislation aims to restore the immediate deductibility of research and experimental (R&E) expenditures and reverse the amortization requirement imposed … Read More

KBKG Announces Enhancements to Dash.tax, Streamlining R&D Tax Credit Claims for CPAs, Startups, and Small Businesses
03/04/2025PASADENA, Calif. – March 4, 2025– KBKG, a leader in tax credits and incentives solutions, has introduced significant enhancements to Dash.tax, its innovative tax automation platform designed for CPAs, startups, and small businesses. The latest updates further streamline the process of claiming R&D tax credits, ensuring businesses can efficiently apply credits to payroll taxes, maximize … Read More

Engineering Firms Loses R&D Credits in Court Ruling
02/12/2025By Michael Maroney | Director, Research & Development Tax Credits The Phoenix Design Group, Inc. v. Commissioner decision issued on December 23, 2024, is an important reminder of the hurdles faced when substantiating research activities for the R&D tax credit. The court denied all research credits claimed by Phoenix Design Group (PDG), a multidisciplinary engineering … Read More

KBKG Tax Insight: Michigan R&D Tax Credit Now Available
02/07/2025By Michael Maroney | Director, Research & Development Tax Credits On January 13, 2025, Michigan Governor Gretchen Whitmer signed HBs 5099-5102 and 4368 to establish the Innovation Fund and the R&D tax credit. With the passage of HBs 5100 and 5101, Michigan will again offer a state-level R&D tax credit. The Michigan research credit offers … Read More

Texas Issues Guidance on Franchise Tax Credits and Carryforward
01/23/2025By Bill Taylor | Principal, Research & Development Tax Credits Recently, the Texas Comptroller’s Tax Policy Division issued guidance on how to apply multiple franchise tax credits and credit carryforwards when more than one is available. The updated guidance clarifies the order in which credits should be applied to maximize tax benefits for taxable entities. … Read More

45X Advanced Manufacturing Production Credit Regulations Update
12/19/2024By Jonathan Tucker | Principal – R&D Tax Credits Republican Senators Tom Cotton (R-AR) and Rick Scott (R-FL) have introduced a resolution (S.J.Res. 119) to overturn final regulations (TD 10010) implementing the Section 45X Advanced Manufacturing Production Credit, a green energy tax incentive created by the Inflation Reduction Act. This mirrors a bipartisan House resolution … Read More

KBKG Tax Insight: Potential Tax Changes Under a Republican Trifecta – Key Issues to Watch
12/03/2024By Jonathan Tucker | Principal, Research & Development Tax Credits Republicans are slated to take control of the legislative and executive branches this coming year, and shifts in fiscal policy will affect taxes, tariffs, and broader economic strategies. KBKG Insight: While there is excitement and talk around “tax cuts,” taxpayers should monitor this changing landscape, … Read More

Key Changes in Accounting Method Procedures for Section 174 Research Expenditures
10/02/2024The IRS has recently issued Rev. Proc. 2024-34, which modifies the method change procedures for specified research or experimental (SRE) expenditures under Section 174. This updated guidance provides important changes for taxpayers seeking to comply with the amended rules following the 2017 Tax Cuts and Jobs Act (TCJA). Here’s a breakdown of the key provisions … Read More

Senate Votes on Tax Relief Bill for IRC 174 R&E Expenditures, Bonus Depreciation and Section 163(j)
08/01/2024By Jonathan Tucker | Principal, Research & Development Tax Credits In a significant move after months of waiting, the Senate voted on the highly anticipated tax relief for American Families and Workers Act, aimed at easing the financial burden on millions of Americans. Championed by Senate Majority Leader Chuck Schumer to bring a vote in … Read More

KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements
07/24/2024By Jonathan Tucker | Principal, Research & Development Tax Credits With the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, significant changes were made to the Internal Revenue Code (IRC), notably to IRC 174. Starting in the tax year 2022, businesses can no longer fully expense their research and experimental (R&E) costs … Read More