This Just In: Internal Software Development Now Eligible for R&D Tax Credit

This Just In: Internal Software Development Now Eligible for R&D Tax Credit

Of all the industries that currently take advantage of R&D tax credits, Manufacturing is the largest. In fact, as stated in the article, in 2013 over 6.8 billion dollars of R&D tax credits went to manufacturing companies.   This is not surprising given the amount of experimentation, uncertainty, testing and engineering required to manufacture even simple products.

This article focuses on even further possible tax credits available due to IRS regulations updated in October 2016. The definition of Internal Use Software or IUS, has been narrowed and now the possible IUS eligible has increased dramatically.

What this means is that across all industries, the research and development of software made for internal uses is now also eligible for R&D tax credits. The development of this software must pass an additional “high threshold of innovation” or HTI test. 

This is a major windfall for manufacturers because of all the internal software development many companies are already doing in areas like manufacturing processes, supply chain management, and inventory and order management.   What this also means is that there is a now a massive incentive for companies in other industries such as architecture, software, biotech, and pharmaceuticals to invest in internal software that helps give them a competitive edge.

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