R&D Tax Credits and Business Application Software: Another Arrow in Your Tax Planning Quiver

With the extended tax return filing deadlines upon us, soon it will be planning season and time to flex your tax consulting skills. Certainly you wouldn’t mind another weapon in your arsenal. That’s where R&D credits for software applications come in. By software applications, I don’t mean creating your own internal A/P system or accounting package, although under the right circumstances, that can definitely qualify. I mean the development of an application for the company’s use to reach their clients, connect with their suppliers, improve the customer experience, bring in external data used in their business, streamline their operations, go to market in a new way, or deliver a product or service differently.

So, what is the ‘arrow’? The arrow is asking questions that go beyond project road maps and numbers but instead go to the heart of what drives the business.

  • What are you excited about that the company is doing or working on this year?
  • What are you doing to improve or stay ahead of your competition?
  • What do you do differently than your competitors?
  • How is your product different than the competition?
  • What initiatives or new projects is the company working on?
  • Are you developing any applications, software or technology for your business?
  • Do you use / outsource programmers or developers for any initiatives you have going on?
  • What kind of changes or improvements are you making to your products or product lines?
  • How does technology fit into that?
  • What kind of changes or improvements are you making to your existing processes?
  • How does technology fit into that?

And here are examples of R&D qualifying activities that those questions have uncovered.

  • Applications to run digital signage that you see in restaurants, movie theaters, breakrooms, etc.
  • Proprietary platforms being created by mortgage lenders to get off separate third party products for loan origination, risk assessment, pricing, mortgage servicing, data analytics for marketing, etc.
  • Software applications to communicate with and direct drones for military and commercial use.
  • Supply chain data technology that monitors the quality conditions of sensitive and perishable products in transit and sends real time data back to the supplier.
  • Applications that deliver interactive virtual reality experiences on company websites. For example, being able to upload a picture of yourself to a clothing company’s website and see how that suit or pair of shoes looks on you.
  • Applications that take raw customer and sales data from large retailers and create advanced data analytics that answer critical business questions and support effective marketing decisions.
  • Applications to automate the migration of data between systems while cutting the labor and time to do it to a fraction and enhancing accuracy
  • Creative vending machine / commissary payment solutions (both the hardware and the software) for government facilities including prisons and for the direct to consumer market.

That’s a wide range of examples but just the tip of the iceberg. The fact is, businesses are doing all sorts of things to stay ahead of the competition, make themselves more efficient, or do something differently to improve on an existing product or service. Sometimes that’s obvious. Many times it’s not; at least not without asking.

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