Your sprint board is a research record. It has just never been read as one.
New architectures, novel algorithms, AI/ML systems, and scale and security work can all qualify. A study maps what your engineers already did to the four-part test.
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Each new or improved release is a business component - a product, software, or technique you’re trying to make better. The work qualifies when your team faces genuine technical uncertainty about architecture, algorithms, performance, scale, or security and resolves it through a systematic process of experimentation: designing alternatives, prototyping, and testing.
Every qualifying activity must pass the IRC §41 four-part test - permitted purpose, technological in nature (here, the principles of computer science), elimination of uncertainty, and a process of experimentation. Routine configuration, content changes, and bug fixes after release don’t qualify; the genuinely uncertain engineering does.
Software firms underclaim for predictable reasons: the work feels like “just building the product,” time isn’t tracked against the four-part test, and generalist preparers skip it. Mapping each activity to the statute - with contemporaneous evidence out of the systems you already run - is exactly what turns everyday engineering into a defensible claim. See documentation & substantiation for what that evidence looks like.
General and illustrative; eligibility depends on your facts.
Not activity categories - situations. If any of these read like a sprint you actually ran, there is very likely a qualified business component underneath it.
You suspected the query planner, then the cache, then the write path. Three indexing and caching strategies were benchmarked against production-shaped traffic before one held.
Why it can qualify
The information you had did not establish the right method. The benchmark runs are a documented process of evaluating alternatives.
Feature pipelines, retraining cadence, and drift detection were designed and re-evaluated against held-out and live data until the deployed metric matched the offline one.
Why it can qualify
Modeling and generalization uncertainty resolved by systematic experimentation - not by reading the documentation.
You prototyped schema-per-tenant against row-level security, load-tested both, and measured the blast radius of a misconfigured policy before committing.
Why it can qualify
Two candidate designs, tested against requirements. Design uncertainty is one of the three flavors §41 recognizes.
Strangler-fig increments, dual writes, shadow traffic, and a rollback design that had to be proven before the first cutover.
Why it can qualify
Capability and design uncertainty about your own system. Re-architecture is a new or improved business component, not maintenance.
Idempotency keys, message ordering, and conflict resolution were designed and replayed against real payloads until reconciliation stopped drifting.
Why it can qualify
Interface uncertainty resolved through iterative testing against actual data, not a configuration exercise.
Storage tiering, query paths, and batching strategies were each measured under load; two were abandoned after the numbers came in.
Why it can qualify
Improving performance is a permitted purpose. The abandoned approaches are part of the experimentation, not wasted effort.
The first implementation worked but could not be extended; the second was built on a different abstraction after both were prototyped.
Why it can qualify
Qualification turns on the process, not the outcome. Work on the version you replaced can still be qualified research.
Illustrative situations, not client work. Whether any of them qualifies for you depends on your facts, your contracts, and your evidence.
A defensible software claim is not assembled from memory at filing time. It is assembled from the record your team already produced: design documents that name the alternatives, benchmark runs with dates and numbers, tickets that say what was still unknown, and the branch that got abandoned.
We pull that record out of the systems you already run, tie each business component to the four-part test, and keep a line from every dollar back to the source row it came from.
Representative activities we see meet the four-part test. The label matters less than the underlying technical uncertainty and experimentation.
What spending counts toward the credit - tailored to how software teams actually spend.
| Expense category | What goes into the base |
|---|---|
| Technical wages§41(b)(2)(A)-(B) | W-2 wages for engineering, QA, DevOps, and technical product staff for time spent on qualified development, supervision, and direct support. |
| Cloud & compute§41(b)(2)(A)(iii) | Amounts paid to rent cloud and compute for development, test, staging, and model-training environments used in qualified research. |
| Contract development (65%)§41(b)(3) | 65% of amounts paid to U.S. third-party developers and agencies for qualified development performed on your behalf. |
| Supplies§41(b)(2)(C) | Limited for software teams - tangible property consumed in research, not depreciable equipment or overhead. |
A directional shape for a software company, not a benchmark. Wages carry the claim; the categories below them are the ones most often left out entirely.
Production hosting for a released product is not research compute. Neither is the seat cost of the tools your team uses - software licenses and SaaS subscriptions are not a §41 expense category at all.
The defensible version of a cloud QRE is an allocation you can point at: tagged accounts, separate development and training projects, or environment-level billing. If nobody can tell which spend was research, an examiner will make the same observation.
An aggressive software claim usually fails on one of five things. Knowing which one applies to you is worth more than another list of qualifying activities.
§41(d)(4)(H)
The trap for agencies, contract-development shops, and anyone doing heavy custom implementation. If the contract pays you regardless of technical success and the customer takes the rights, the research is generally funded - and funded research is out. Fixed-price work where you eat the overruns and keep the IP is a different answer.
§41(d)(4)(E)
Software developed primarily for internal general and administrative functions faces an additional high threshold of innovation. Software you sell, lease, license, or otherwise market - and software that lets third parties initiate transactions or interact with your systems - is generally outside that internal-use category.
§41(d)(4)(A), (D)
Bug fixes, configuration, content updates, routine maintenance, and A/B tests run to answer a marketing question are not qualified research. The line is commercial production of that business component - the next genuinely uncertain improvement starts a new one.
§41(d)(3)(B)
A visual refresh, a brand-driven redesign, or copy and layout changes are style and taste factors. If the redesign forced a real rendering, accessibility, or performance problem to be solved, that engineering is a separate question - and it is the engineering you claim, not the palette.
§41(d)(4)(F)
Offshore and nearshore development is excluded from the credit no matter who employs the engineers, where the invoice is paid, or how the work is supervised. This is the single most common silent overstatement in software claims.
§41(h) lets a qualified small business elect to apply up to $500,000 of its research credit per year against payroll taxes instead of income tax - the employer share of Social Security tax first, and the Medicare share above that. For a venture-funded software company with a large engineering payroll and no taxable income, that is the difference between a carryforward and cash.
The definition is where companies get caught: it turns on gross receipts under $5 million for the credit year and on not having had gross receipts before the five-year window ending in that year. A company that took its first dollar of revenue six years ago is out, however small it still is. The election is made on a timely-filed return, claimed on Form 8974 with your quarterly employment tax return, and cannot be made for more than five tax years.
Summary only - the statutory definition and the aggregation rules decide it. We test them explicitly.
A hypothetical scenario to show how the pieces fit together. It is not a quote, projection, or promise of results.
Plus the full §174A first-year deduction on domestic R&E, including software development.
Illustrative only. Figures are hypothetical and rounded; the federal credit commonly works out to roughly 6-10% of QRE depending on method, filing history, and the §280C election. Your result depends entirely on your facts. This is not a quote or a promise of any result.
IRC §174A restores immediate, full expensing of domestic research & experimental costs for tax years beginning after December 31, 2024 - and domestic software development is explicitly included. Captured alongside the §41 credit, you get the deduction and the credit, correctly.
Tell us about your product and stack, and we’ll map your qualifying development to the four-part test - including §174A software expensing - reviewed and finalized by R&D experts and backed by Audit Protection. Contact us for pricing tailored to your study.
We typically reply within one business day.
