R&D tax credit evidence · checked against the sources on

Does software development qualify for the R&D tax credit?

Software development can qualify when the work, component by component, passes all four parts of IRC §41(d): it aims at a new or improved function, performance, reliability or quality; it relies on computer science or engineering; it starts out uncertain about how to build it or whether it can be built; and substantially all of it is a process of experimentation. Software built mainly for your own back-office use must also clear a higher threshold of innovation. Since 2025, §174A also lets you deduct domestic research and software costs in the year you pay them; that deduction is separate from the credit.

Evidence to review with your tax adviser; not tax advice.

Where software work usually falls

Often part of a claimA new ranking or routing algorithm whose results were unknown until benchmarked; a data store redesigned after the first approach could not meet a latency target; a model compared against baselines before one was chosen
Usually notWork after the component is released for commercial use; adapting an existing product to one customer; copying an existing component; routine bug fixes, styling and dependency updates; research funded by someone else, or done outside the United States

The test applies per business component and then, if the whole component fails, to smaller parts of it. The exclusions are in IRC §41(d)(4). Whether a given piece of work qualifies is for your tax adviser; the history shows what was done and when.

Internal-use software

Software developed mainly for your own general and administrative functions (finance, HR, internal tooling) must also be innovative, carry significant economic risk, and not be commercially available, on top of the four parts. Software you sell or let customers use is not internal-use. Section G asks you to mark each software component as internal-use, dual-function, non-internal-use, or excepted.

§174A since 2025, and the credit

From tax years beginning after 31 December 2024, §174A lets you deduct domestic research costs, software development included, in the year you pay them; foreign research is still capitalised. That is a deduction, separate from the credit, and the two interact: §280C(c) now reduces the deduction by the credit, or you elect a reduced credit (Morgan Lewis). A startup with little income tax can use up to $500,000 a year of the credit against payroll tax through the qualified small business election (IRS).

What your history can show

The uncertainty and the experimentation are the parts most often missing from a software claim, and the parts a repository holds best: spikes and prototypes started before anyone knew the answer, benchmarks, reverts, branches that were never merged. See what git shows, and what it does not.

Check your own, on your machine

npx --allow-git=root github:agentwares/rd-ledger --year 2026
  1. Fetch every branch people pushed, so the experiments that never merged are there: git fetch --all
  2. List the year's commits with date, hash, author and subject: git log --all --since=2026-01-01 --until=2027-01-01 --date=short --format='%ad,%h,%an,%s' > commits.csv
  3. Find the words people wrote while experimenting: git log --all -i -E --grep='revert|spike|experiment|prototype|benchmark|tried|abandon' --since=2026-01-01 --until=2027-01-01 --oneline
  4. List the branches never merged into your main branch, the approaches not taken: git branch -a --no-merged main
  5. Count each person's commits, and add a folder at the end to count one component: git shortlog -sn --all --since=2026-01-01 --until=2027-01-01 -- apps/router
  6. Give your adviser each line with its commit hash, so it can be checked against the repository, and take hours or wages from payroll, never from git.

It runs git on your repository, makes no network request and calls no LLM, and writes a dated evidence pack, evidence.md and CSVs, with each line traced to its commit. Hours and amounts appear only from figures you supply. Source (MIT)

A year-round R&D evidence ledger, kept month by month as the work happens, is not built. Each month's evidence captured that month and kept under a date we hold, so the record shows when it existed; at year end, the hours or wages you enter allocated across your business components in Form 6765 Section G's shape; and a read-only link for your tax adviser.

Not built. No price is set and nothing is charged. It gets built only if enough people ask.

Count me in

Sources

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