Does Software Development Qualify for R&D Credits?

Software development is one of the most common and well-established categories of qualifying R&D activity under IRC Section 41. The IRS explicitly recognizes that computer software can be a "business component" subject to the four-part test.

This means that building, improving, or designing software — when it involves technological uncertainty and experimentation — can generate significant tax credits.

• Building new product features that involve architectural decisions, performance trade-offs, or integration challenges
• Developing internal tools with novel technical approaches (not just configuring off-the-shelf software)
• Performance optimization when the solution isn't obvious and requires experimentation
• Data pipeline engineering involving scalability, reliability, or latency challenges
• Security implementations addressing novel threat models or encryption approaches
• API design and integration where the approach to interoperability isn't straightforward
• Machine learning model development including feature engineering, architecture selection, and training optimization
• DevOps and infrastructure work when solving scaling, reliability, or deployment challenges with uncertain outcomes

• Routine bug fixes with known solutions (stack overflow copy-paste)
• Simple CRUD operations following established patterns
• UI styling changes that are purely aesthetic (not functional)
• Installing or configuring off-the-shelf software
• Routine maintenance and updates (dependency bumps, etc.)
• Project management and non-technical planning
• Market research and user surveys
• Documentation of already-completed work

The line between qualifying and non-qualifying isn't always obvious. A bug fix that requires understanding a race condition and experimenting with synchronization approaches might qualify. A bug fix where you know exactly what's wrong and change one line does not.

A critical point: the IRS does not require that your work be new to the industry or represent a scientific breakthrough. The standard is "new or improved" from the taxpayer's perspective. If your team faces genuine uncertainty about how to build something — even if other companies have solved similar problems — the work can qualify.

This is why so much software development qualifies. Every engineering team encounters problems where the solution path is uncertain, even if the problem domain is well-established.

The IRS expects evidence that each qualifying project met the four-part test. For software teams, the strongest evidence comes from:

• Git commit history — shows what was attempted, when, and by whom
• Branch and PR strategies — demonstrate experimentation with alternatives
• Design documents — capture uncertainty at the outset
• Code review comments — show technical evaluation of approaches
• Time tracking data — ties developer hours to specific projects

This is inherently what development teams produce — the challenge is organizing it into a format that maps to the IRS criteria. That's exactly what quarryFi automates.