It should come as no surprise that software and technology companies can take advantage of the R&D Tax Credit when conducting system design activities. After all, that work is almost always associated with research and development.
So, if your company is developing new software, it makes sense to consider applying for the R&D Tax Credit, which was designed as an incentive to encourage companies to innovate.
Software design occurs during one or more phases of the Software Development Life Cycle, (SDLC). However, you'll find activities that qualify for the R&D Tax Credit in each phase of the SDLC. This blog takes a closer look at Phase Three, the systems design phase.
In this phase, detailed business needs are determined for the proposed software system. This generally includes the necessary specs, features, and operations that will satisfy its functional requirements. Considerations include the essential hardware and/or software components, hosting infrastructure, networking capabilities, security, processing, and procedures that will allow the system to meet its objectives.
The systems design phase often involves incorporating deliverables from the requirements and analysis phases into a detailed design with enough specificity so the developers can write the code. Here are some qualifying activities involved in the phase:
Types of system design expenses that qualify for the tax credit include:
Remember that in order to qualify for the R&D Tax Credit, the systems design work must pass the software industry's Four-Part Test:
The R&D Tax Credit was created to encourage innovation by providing an opportunity to reduce your tax liability and reinvest your savings back into the business to become more competitive, grow faster, and increase profitability. Consult with an R&D tax credit expert to understand how you might qualify.