How to Reduce Your Cloud Computing Costs with the R&D Tax Credit

Cloud computing has made it cheaper and easier to experiment, research, and innovate. Companies investing in cloud-based innovation may be able to take advantage of federal R&D tax credits to support their projects. Cloud computing services have been an important driver in innovation — fueling business growth at an unprecedented cost and scale.

Cloud computing is a method of outsourcing IT functionality to a virtual environment that allows flexibility and scalability in response to supply and demand – Infrastructure as a Service. This creates efficiencies in the software development process through on-demand access to compute and storage resources. By reaching customers on a global scale, it can significantly shorten the software development life cycle. It is safe to say that cloud computing generates major business opportunities. Top cloud computing companies include Amazon Web Services (AWS), Microsoft Azure, and Google Cloud.

In order for cloud computing expenses to qualify for the R&D tax credit, expenses may be either in-house or contracted research. Qualified expenses must:

• Be useful in the development of a new or improved business technology
• Undergo a process of experimentation

Qualified expenses are not for simple file storage, mail hosting, or other similar activities. It is important to differentiate what portion of the payments are for hosting software under development versus payments for hosting a production software version. The estimate can be provided using a business judgment approximation.

In addition to enhancing productivity, cloud computing serves as an important platform for innovation. Companies engaged in cloud-based innovation are strong candidates to receive federal R&D tax credits for these expenses.

Our team of R&D tax credit specialists is here to help. Contact us today to schedule a free consultation with one of our tax experts.