The credit is straightforward in principle and fussy in practice. The principle: prove you spent money on qualified research and calculate the credit. The practice: the proof has to exist, it has to be organized by project, and someone who knows the rules has to put it on the right form.
Here is how it goes when it goes well. We are not tax advisors. This is what we have watched happen across our clients’ claims, working with their CPAs and with specialist firms, and what makes the difference between an easy claim and a painful one.
Who is involved
Three parties, and it helps to name them early.
- Your CPA decides whether to claim, calculates the credit, and files it. Some CPAs do this routinely. Others prefer to bring in a specialist.
- A credit specialist, if you use one, runs the study: interviews, documentation review, the technical narratives, and the calculation. They typically charge a fee or a percentage of the credit. For a first claim on a large project, most owners we know are glad they used one.
- Your software firm is the source of the evidence. If the firm kept good records as the work happened, the study is quick. If not, everyone spends weeks reconstructing what was done and why.
The process, in order
- Decide before the project, not after. Tell your CPA you are about to build software and ask whether they will treat it as qualified research. Tell your software firm the same, so the records are kept with the claim in mind. This single step saves more effort than everything else combined.
- Identify the business components. The IRS wants the claim broken out by project, or by the distinct products, processes, and software you worked on. A new operations platform is one component. The mobile app that came later may be another.
- Gather the evidence while the work happens. The rules reward contemporaneous documentation, meaning records created at the time, not memories assembled at filing. What that looks like on a software project is in the next section.
- Tally the qualified expenses. Wages for your people who worked on it, cloud and supply costs used in development, and 65 percent of what you paid the outside firm.
- Write the technical narrative. For each component: what you set out to build, what was uncertain at the start, what alternatives were tried, how it was tested, and what the outcome was. A good specialist writes this from the evidence. A good software firm hands over most of it in its closeout report.
- Calculate and file. The credit goes on Form 6765 with your return. The form now asks for project-by-project detail directly, which for most companies is mandatory starting with 2025 returns, so the breakdown in step 2 is not optional.
- Keep the file. The credit can be examined for years after it is claimed. Keep the narrative, the records, and the contracts together.
The documentation that makes it easy
Every claim we have seen come together smoothly had these on hand:
- The contract and statements of work, which establish that you kept the rights to the software and paid for the work itself, not only for a result promised in advance. Those are the two conditions for counting an outside firm’s fees.
- A description of the technical objective for each project and what was uncertain at the outset. Our planning engagements produce this as a matter of course, because it is the same document that scopes the build.
- Records of the experimentation. Design alternatives that were considered, prototypes, architecture decisions and why they changed, failed approaches and what replaced them. Sprint reviews and decision logs are exactly this.
- Time by person. Who worked on which component and roughly how much. For your own employees this is the largest part of the number, so a simple time record during the project is worth a great deal at filing.
- Test records. Test plans, test results, load and integration testing. Testing is the experimentation the rules are looking for.
- Invoices from the software firm, ideally tied to the statements of work they belong to.
If your firm uses source control, issue tracking, and a real delivery process, most of this already exists. The job is making sure it is kept and that someone can map it to the components.
Timelines and lookback
A claim for the current year goes on the return you file. If you built software in earlier years and did not claim, you can generally amend returns going back three years. After the 2025 law change, companies with average gross receipts of $31 million or less can also elect to deduct 2022 through 2024 domestic research costs immediately by amending, which for some owners is worth more than the credit itself. Ask for both to be evaluated together.
The payroll-tax option for young companies
A company under five years old with less than $5 million in gross receipts may be able to apply the credit against payroll taxes instead of income tax, up to $500,000 a year. That matters for a company that is not yet profitable and would otherwise carry the credit forward. If you are building a product company, raise this with your CPA specifically.
The Texas credit
Texas offers its own research credit against the franchise tax. The legislature restructured it in 2025, with the new version taking effect in 2026 and following the federal definitions more closely. Your CPA will know the current rate and mechanics. The point for you is that the same documentation supports both claims, so gather it once.
What tends to go wrong
- No records until filing. The most common problem by far. Reconstructing a year of engineering from memory is slow, expensive, and thin under examination.
- A contract that says the wrong thing. If your agreement gives the software firm the rights to the work, or makes payment contingent on results, your CPA may conclude the research was not yours to claim. Read the IP and payment terms before you sign.
- Offshore work. Development performed outside the United States does not count toward the federal credit, even when you paid for it.
- Mixing in maintenance. Ordinary support and bug fixing after launch is not research. Keep it on a separate statement of work so the qualified spend is clean.
The short version
Decide early, keep records as you go, keep your rights, and let someone who knows the form file it. If you have not read it, the first post covers whether your project qualifies. The next covers what a software firm should be handing you so that your side of this takes an afternoon rather than a month.
This is general information, not tax advice. Talk to your CPA or a credit specialist about your situation.