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R&D Tax Credits for an Insurance Company – Are You Serious?

People don’t typically think of Research and Development when they think of banks, retailers, brokers, insurance companies, hedge funds, and financial service companies. However, many of these companies have large IT departments that are developing software for their own operations. That development can qualify for a very significant tax incentive – the R&D Tax Credit.

The development of software by or for a company that is deemed to be for “internal use” will qualify for the R&D tax credit if the software is considered innovative. Examples of “internal use software” include software that is developed for a company’s financial management, human resources, or support services. It can be difficult for most software developed for these purposes to meet the high threshold of this “innovation test” in order to qualify for the R&D credit. It would need to be software that is not otherwise commercially available, for example.

However, there are two situations where the software developed for a service company, like a bank or insurance company, would not need to be considered innovative in order to qualify for the R&D tax credit. First, when the software is developed to facilitate the viability of business interactions with third parties, such as executing banking transactions or tracking deliveries. And, second, when the software is developed to function as a software portal that enables third parties to execute actions on the company’s software system (think of a functional website or an app on your phone). Since these situations do not require the high “innovation test,” they will very likely qualify for the R&D tax credit.

For a consultation or to learn more about how the R&D tax credit may be applicable to you, please reach out to David Mayer, CPA and National Director of Engineered Tax Services, directly dmayer@engineeredtaxservices. You can also learn more about how internal use software qualifies for the R&D tax credit in David’s latest video: http://bit.ly/Internal-Use-Software-RD.

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