For software companies, Tri-Merit provides a range of tax services that support innovation, asset optimization, and energy-efficient practices. Software firms often qualify for the R&D Tax Credit through activities such as developing algorithms, coding for new software features, or enhancing cybersecurity. Additionally, Cost Segregation can apply if they own facilities, accelerating tax deductions for assets within their physical space. Energy Incentives and 179D credits can reward energy-saving improvements in data centers or office buildings, helping software firms manage tax liabilities.
In recent years, tangible and packaged software products have largely been replaced by software-related services like the cloud-based software as a service (SaaS), cloud storage and computing, mobile app development and hosting. Software sub-industries can include Software Publishers, Computer Systems Design and Related Services, Data Processing, Hosting and Related Services, Internet Publishing and Broadcasting and Web Services.
Tri-Merit’s job is to keep up with these changes and help you identify activity that can get you the largest possible return allowed.
R&D Credit for Internal Use Software
In an R&D tax credit analysis, the IRS makes a distinction between software that is to be sold for commercial production or intended for use by 3rd parties (such as the examples mentioned above) versus internal use software that is developed by the taxpayer for use in general and administrative functions that facilitate or support the conduct of the taxpayer’s trade or business.
Companies in certain sectors such as banks, retailers, brokers, insurance companies, hedge funds and financial service companies often have large IT departments that develop software for their own operations. This potentially makes them eligible for the R&D credit as well.
Internal use software must pass the High Threshold of Innovation test. Examples include:
- MRP/ERP
- Payroll/Billing
- Warehouse Management System
- HR
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