Designing a seamless user experience (UX), enabling functionality among complex systems, and developing meaningful analytical methods require significant financial investment in research and development (R&D).
Yet many software companies – especially those nascent and rapidly growing – often overlook untapped resources: R&D tax credits. These powerful tax incentives can increase cash flow, reduce tax liability, and maximize the most precious asset of all: developers’ time.
For one of Acena Consulting’s partners innovating at the intersection of online fitness and nutrition, this dilemma was acute. This entity with an annual revenue of $270 million and 300 employees took a risk familiar to successful startups: transitioning to an internally managed model software development while continuing to collaborate with contractors.
The Chief Financial Officer (CFO) approached Acena Consulting (Acena) because he recognized that strategic financial stewardship was paramount to achieving autonomy during product development, which would safeguard the company’s long-term future.
Our client relied on us to navigate the complexities of R&D tax credits, which can be claimed at the federal and state level.
Acena completed a qualification assessment of R&D processes and projects, performed a quantitative analysis, and developed the documentation necessary to substantiate each claim.
During qualification, Acena scrutinized company activities to identify all project-associated expenses. This examination included a deep dive into all R&D projects, including those supporting:
Android and iOS Application Development:
Designing a targeted UX.
Developing algorithms for personalized content delivery and decision-making.
Enabling new functionalities among systems for inventory control, order processing, and sales tax collection.
Tackling the technical uncertainties of working with sensitive vendor data and effecting dynamic environment changes.
Data Warehouse Development:
Architecting an efficient data warehouse to analyze, process, and store customer information.
Formulating algorithms enabling customer segmentation.
Dynamic Response Engine (DRE):
Building branching logic and decision trees for personalized recommendations.
Constructing front-end self-service funnels and content templating based on user selections.
Empowering new functionalities for user authentication and ad tracking.
Improving legacy systems’ reliability while maintaining accuracy during user selection.
Infrastructure Optimization:
Building new DevOps methods, including infrastructure as code (IaC) practices and automated testing environments.
Pioneering new processes for continuous automated testing and deployment to cloud-hosted environments.
Website Development:
Creating algorithms for customer behavior analysis and personalized follow-up sequences.
Designing a robust sales and marketing platform performing customer service and e-commerce.
Formulating tools for targeted offers, user-list segregation, and high-ticket sales.
Acena’s diverse team of CPAs, engineers, and tax professionals was uniquely equipped to identify these eligible expenditures and understand their connections to functional and performance-related advancements, which streamlined the study to our partner’s benefit in both time and money.
Beyond simply qualifying eligible activities, Acena provided a quantitative analysis that resulted in a substantial and defensible credit and developed the necessary documentation to support their claim. This meticulous approach ensured our partner could confidently claim the credits without undue fear of an audit.
The results of the engagement were significant:
Our partner secured substantial R&D tax credits, which translated directly into reduced tax liability and improved cash flow. These funds were strategically reinvested back into the business to:
This case study highlights the importance of strategic tax planning for software companies.
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Want to learn more about qualifying and documenting activities for R&D tax credits?
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Edited by Randy Eickhoff, CPA, Founder & Head Coach at Acena Consulting. Photo courtesy of eevblog on Flickr.