R&D Tax Credits
Your build may pay part of its own bill.
Custom software development is exactly the kind of work the federal R&D tax credit was written to reward. Many businesses that hire us qualify, and never claim it.
What It Is
A dollar-for-dollar credit, not a deduction.
The federal research credit (Section 41 of the tax code) rewards businesses that spend money developing new or improved products, processes, or software. Unlike a deduction, which only reduces the income you’re taxed on, a credit comes straight off the tax you owe, dollar for dollar. It commonly works out to a meaningful single-digit percentage of qualified research spend, and most states layer their own credit on top.
Early-stage companies without income tax to offset aren’t left out: qualified small startups can apply the credit against payroll taxes instead, up to a cap set by law.
Why Custom Software Qualifies
The IRS asks four questions. Custom builds tend to answer all four.
- 01
Permitted purpose
The work must create or improve a product, process, or piece of software. A system built for your business that didn’t exist before is the textbook case.
- 02
Technological in nature
The work must rest on hard science; computer science and software engineering count. AI systems, integrations, and custom applications are squarely in bounds.
- 03
Elimination of uncertainty
There must be real technical unknowns at the start. If an off-the-shelf tool couldn’t do it (which is why you came to us), that uncertainty usually exists by definition.
- 04
Process of experimentation
The work must proceed by designing, testing, and refining alternatives. That is literally our build phase: working software early and often, iterated against your real workflow.
One honest wrinkle: software built purely for a business’s own internal administration faces an extra, higher bar in the IRS rules (the “internal-use software” test). Systems that interact with your customers (answering leads, taking bookings, running your storefront) generally sit outside that stricter test. Where a specific project lands is exactly the kind of fact question your CPA settles.
What Can Count
Qualified expenses, in plain terms.
- Your team’s wages for time spent on the qualifying work, including supervising and supporting it.
- Contract research: what you pay an outside firm like OAKAS to do development on your behalf generally counts at a reduced percentage, provided you keep the rights to the work and bear the economic risk. Our hand-everything-over, you-own-it engagement model is built that way, but your contract terms decide it, so have your CPA confirm.
- Supplies and cloud computing used in the development work.
Worth knowing: the 2025 federal tax law (the OBBBA) permanently restored immediate expensing for domestic R&D costs going forward, so qualifying development spend no longer has to be spread over five years. The same law briefly let smaller businesses amend their 2022–2024 returns under the new rules; that window closed on July 6, 2026, so it’s only relevant if your CPA already filed.
Where We Come In
We build. We document. Your CPA claims.
We’re engineers, not accountants, and we will never prepare your claim. What we do is hand you a paper trail that makes your CPA’s job easy:
- A fixed scope that states the technical problem and the uncertainty being resolved.
- Iteration records from the build phase: what was tried, what changed, and why.
- Invoices broken out so development work is cleanly separated from anything that wouldn’t qualify.