R&D Tax Credits for Software Startups
You are already writing code. You might be leaving money on the table by not claiming the R&D credit.
· 1 min read
The Research and Development (R&D) Tax Credit is not just for scientists in lab coats. If you are developing new software, improving algorithms, or creating new technical architectures, you likely qualify.
Payroll Tax Offset
For early-stage startups that aren't profitable yet (and thus pay no income tax), this might seem useless. Wrong. The "Payroll Tax Offset" allows you to apply the credit against your Social Security payroll taxes. This translates to real cash savings every month.
What Qualifies?
Wages for engineers, product managers, and designers. Cloud hosting costs used for development environments. It does not cover routine bug fixes or cosmetic UI changes.
You need to work with a CPA to conduct an "R&D Study" to document your qualifying activities. But for a tech startup with 5 engineers, this credit can be worth $50k+ per year.