Project Summary
A venture-backed software startup developing a proprietary SaaS platform engaged CSSI to evaluate their eligibility for the federal and state R&D Tax Credit. Like many early-stage technology companies, the founders had invested heavily in product development but had never claimed the credit. CSSI’s engineering-based analysis identified $2,090,500 qualifying research expenses and delivered a Total State Credit of 41,810 and a Total Federal Credit of $85,732
Project Overview
To qualify for the R&D Tax Credit, each activity must satisfy the IRS four-part test. CSSI’s analysis confirmed that the qualifying activities identified for this company met all four criteria:
- Business Component: The team was building new software functionality, including a proprietary machine learning module and a real-time data processing engine, with the clear intent of creating an improved, marketable product.
- Elimination of Uncertainty: At the start of each initiative, the team faced genuine technical uncertainty about whether their approach would achieve the desired functionality or performance, the outcome was not known in advance.
- Process of Experimentation: Development followed an iterative build-test-refine cycle, with sprint records and version control history documenting a systematic evaluation of multiple technical alternatives.
- Technological in Nature: All development work was grounded in computer science and software engineering principles, addressing complex challenges in system performance, scalability, and algorithmic design.
|
Employee Wages |
$1,840,000 |
|
Total S/W Costs |
$250,500 |
|
Total QRE’s |
$2,090,500 |
|
Total State Credit |
$41,810 |
|
Total Federal Credit |
$125,430 |
Study Results
The analysis identified a total of $2,090,500 in Qualifying Research Expenses (QREs) across the tax year. The largest driver of that figure was employee wages, with $1,840,000 attributable to qualifying research activities across a team of 24. Contractor expenses contributed an additional $212,000 to the QRE pool, while supply costs added $38,500, reflecting the hands-on technical work involved in building and iterating on the platform.
Based on those qualifying expenses, the study produced a federal R&D Tax Credit of $125,430 and a state R&D Tax Credit of $41,810, bringing the company’s combined tax credit benefit to $167,240.
Key Takeaways
- Startups don’t have to wait to benefit: This study demonstrates that you don’t need to be profitable to capture R&D credits. Qualifying early-stage companies may be able to offset payroll taxes directly, making this one of the most accessible incentives available to growing technology businesses.
- A compliant, defensible result: Every activity claimed was evaluated against the IRS four-part test and documented to withstand scrutiny. CSSI’s methodology prioritizes accuracy and auditability, not just maximum numbers.
- Contractors count too: The $212,000 in qualifying contractor expenses reflects a reality many startups overlook, third-party development work can contribute meaningfully to your QRE pool when properly documented and evaluated.
- Your team is your biggest asset: With $1,840,000 in qualifying employee wages, the startup’s internal engineering team was the primary driver of the credit, a strong reminder that the work your developers do every day has measurable tax value.
- Meaningful, immediate impact: This study generated over $167,000 in combined federal and state tax credits, real cash flow that can be reinvested directly into product development, hiring, or runway extension.
Ready to Discover Your R&D Tax Credits Potential?
If your company is developing or improving products, formulas, or processes, you may be leaving significant tax credits on the table. CSSI’s engineering-based approach ensures every qualifying activity is identified, documented, and defensible, so you capture the full value of the work your team is already doing.
Request a Free Analysis today and find out what your business could qualify for.
