Demistifying the R&D Credit for Software
Find out which software development activities qualify for the R&D tax credit. From prototyping to testing, see how your work meets IRS R&D criteria.
Mark Stapleton | Director of Quality Control, SPRX
Oct 8, 2025
Fewer than 3 in 10 businesses that qualify actually claim the R&D tax credit (U.S. Chamber of Commerce).
Most miss out because of confusion about eligibility and the perceived complexity of filing.
R&D in software happens whenever developers, engineers, and product teams design, test, and refine solutions that enhance functionality.
If your team is building new systems, improving existing ones, or solving complex technical challenges, that’s qualified research. And it deserves to be recognized.
At SPRX, we help software teams understand which activities qualify for the R&D tax credit and why. Read this guide to get a quick understanding of the qualified research activities (QRAs) that could apply to your work.
What Counts as Qualified Research Activities at an Engineering Firm
If your firm is doing any of these activities, you qualify for the R&D credit:
Design and Development
Designing and developing new or improved software technologies
Conducting requirements, domain, or scope analysis for new software functionality
Evaluating and establishing functional or technical specifications
Designing and developing software architecture or system frameworks
Integration and Interfaces
Establishing electronic interfaces and functional relationships between software models or systems
Developing APIs, middleware, or communication protocols that enable data flow and interoperability
Programming and Testing
Writing, compiling, and debugging source code
Performing software validation, regression, or unit testing to ensure performance and stability
Iterating on algorithms or data structures to improve efficiency, accuracy, or scalability
Each of these activities aligns with the IRS Four-Part Test for Qualified Research.
The IRS Four-Part Test
Each of these activities meets the IRS four-part test (Section 174) for Qualified Research:
Purpose: Improving a product, process, or method
Technology: Grounded in agricultural or engineering principles
Uncertainty: Testing to find what performs best
Experimentation: Measuring, comparing, and refining results
IRS Test | What It Means (Plain English) | How SPRX Documents It |
|---|---|---|
Permitted Purpose | You are improving a structure, system, or process. | SPRX maps each project’s objective to its qualifying purpose. |
Technological in Nature | The work is based on engineering or computer science. | SPRX classifies projects by their technical foundation to meet IRS standards. |
Elimination of Uncertainty | You are exploring multiple design options to find what works. | SPRX captures and structures the data that demonstrates those decisions. |
Process of Experimentation | You are modeling, testing, or prototyping to validate performance. | SPRX turns that iterative design work into clear, audit-ready documentation. |
Why Software Companies Qualify for the R&D Credit
Software innovation is defined by iteration. Every sprint, build, and test cycle is a structured process of experimentation. When your team designs new systems, improves architecture, or optimizes performance, that work meets the IRS definition of qualified research.
SPRX identifies and documents those activities, connecting your technical development process to defensible R&D credit eligibility.
The Takeaway for Software Companies
R&D in software happens in code, commits, and iterations. It’s the process of solving complex problems through experimentation, design, and testing.
SPRX helps software teams capture the value of that innovation—translating development work into credible, documented research that stands up to audit and earns the recognition it deserves.
Get in touch if you want help claiming your R&D credit.
