{"id":3708,"date":"2019-10-15T20:47:41","date_gmt":"2019-10-15T20:47:41","guid":{"rendered":"https:\/\/sarahf10.sg-host.com\/?p=3708"},"modified":"2021-02-23T16:13:00","modified_gmt":"2021-02-23T16:13:00","slug":"cloud-based-innovation-may-be-eligible-for-rd-credit-claims","status":"publish","type":"post","link":"https:\/\/taxops.com\/cloud-based-innovation-may-be-eligible-for-rd-credit-claims\/","title":{"rendered":"Cloud-based innovation may be eligible for R&#038;D credit claims"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">By <a href=\"https:\/\/taxops.com\/team\/jamie-overberg\/\">Jamie Overberg<\/a>&nbsp;<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"alignright is-resized\"><img decoding=\"async\" src=\"data:image\/gif;base64,R0lGODlhAQABAIAAAAAAAP\/\/\/yH5BAEAAAAALAAAAAABAAEAAAIBRAA7\" data-src=\"https:\/\/taxops.com\/wp-content\/uploads\/2019\/10\/cloud-computing.png\" alt=\"\" class=\"wp-image-3709 lazyload\" width=\"410\" height=\"269\"\/><noscript><img decoding=\"async\" src=\"https:\/\/taxops.com\/wp-content\/uploads\/2019\/10\/cloud-computing.png\" alt=\"\" class=\"wp-image-3709 lazyload\" width=\"410\" height=\"269\"\/><\/noscript><\/figure><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">Cloud\ncomputing is changing all aspects of business from operations to collaboration.\nGetting the most out of cloud computing often takes some heavy lifting in the\nresearch and development department. These platform innovation costs may be\nqualified research expenses (QREs) and eligible for research &amp; development\n(R&amp;D) federal and state credits. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>How\nwe got here<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The idea of expensing &#8220;leased&#8221; computing power dates back to the introduction of R&amp;D credits in 1981. Back then, few companies had computers. It was standard practice to &#8220;lease&#8221; computer time from the government, using mainframe supercomputers for experimentation and discovery. These huge computers took up entire floors and required additional air conditioners to cool the room. Thus, legislators included leased computer costs (LCC) as part of the credit as evidence in IRC Sec.&nbsp;41(b)(2)(A)(iii)&nbsp;Under regulations prescribed by the Secretary, any amount paid or incurred to another person for the right to use computers in the conduct of qualified research.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As\nmore computing power made its way into desktop computers, taxpayers shifted away from LCC to buying computers used for research and development.\nAnd now, a reversal is taking place to cloud\ncomputing. It is now cheaper and easier to innovate by leasing cloud computing\ntime than to purchase servers and outfit data\ncenters. Here too taxpayers may be able to take advantage of R&amp;D credits.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Federal\ncredits<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The\ntotal economic impact of cloud-based innovation is expected to be between $1.7\ntrillion and $6.2 trillion annually by 2025, according to McKinsey &amp; Co.\nCompanies are using this pooled computing power to drive innovation at\ngenerally three different service levels:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Servers (IaaS)<\/li><li>Platform (PaaS)<\/li><li>Software application (SaaS)<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The\ncloud computer costs associated with innovation using these services may be\neligible for federal tax R&amp;D credits when:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The cloud is operated by someone other than the taxpayer and located off the taxpayer&#8217;s premises; and,<\/li><li>The taxpayer is not the primary user of the computer.<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">QREs specifically include computer costs used for in-house research as a platform for business innovation. This includes cloud hosted development platforms and beta testing of pre-released software programs. It does not include operating platforms.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To qualify for the federal credit, LLC servers must be located in the United States and the taxpayer must properly document where the developmental cloud costs are occurring.&nbsp;The taxpayer may further benefit from state-level credits, where available, in the state where computing takes place and LCC is defined as a qualified research expense. <\/p>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Let&#8217;s talk tax<\/strong><\/h3>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p><a href=\"https:\/\/taxops.com\/team\/jamie-overberg\">Jamie Overberg<\/a>\u00a0can be reached at joverberg@taxops.com.<\/p><\/blockquote>\n\n\n\n<div style=\"height:32px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"mailto:info@taxops.com\">Schedule a consultation<\/a><\/div>\n\n\n\n<div style=\"height:32px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>More Tax News<\/strong><\/h3>\n\n\n<ul class=\"wp-block-latest-posts__list wp-block-latest-posts\"><li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/auditor-independence-in-the-age-of-private-equity\/\">Auditor Independence in the Age of Private Equity: What CFOs Need to Know<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/r-d-credits-for-software-companies\/\">R&amp;D Credits for Software Companies: Scrum Teams, Qualifiers, and Section 174 After OBBBA<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/section-174-decoupling-what-tax-pros-need-to-know-state-by-state\/\">Section 174 Decoupling: What Tax Pros Need To Know State By State<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/sean-espy-new-partner\/\">TaxOps Welcomes Sean Espy as Partner, Tax Minimization<\/a><\/li>\n<li><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/taxops.com\/state-nexus-demystified-navigating-tax-compliance-after-wayfair-episode-1-2\/\">Your Tax Footprint Is Probably Bigger Than You Think: What Finance Leaders Need to Know About State Nexus<\/a><\/li>\n<\/ul>\n\n\n<div style=\"height:28px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<strong>Follow Us<\/strong><br>\n<a href=\"http:\/\/www.linkedin.com\/company\/201050\" target=\"_blank\" rel=\"noopener noreferrer\"><i class=\"fa fa-linkedin-square fa-2x\"><\/i><\/a>\n<a href=\"https:\/\/twitter.com\/taxops\" target=\"_blank\" rel=\"noopener noreferrer\"><i class=\"fa fa-twitter-square fa-2x\"><\/i><\/a> <a href=\"https:\/\/taxops.com\/prospects\/connect-with-us\/\" target=\"_blank\" rel=\"noopener noreferrer\"><i class=\"fa fa-envelope-square fa-2x\"><\/i><\/a>\n","protected":false},"excerpt":{"rendered":"<p>Getting the most out of cloud computing often takes some heavy lifting in the research and development department, which may be eligible for research &#038; development (R&#038;D) federal and state credits.<\/p>\n","protected":false},"author":3,"featured_media":3709,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","spt_transcript":"","footnotes":""},"categories":[78,226,227],"tags":[345,45,346,120,48,347,50,349,350,237],"class_list":["post-3708","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-savings","category-tax-news","category-white-papers","tag-cloud","tag-credit","tag-eligible","tag-innovation","tag-rd","tag-rd-claims","tag-research-credit","tag-tax-saving","tag-taxops-minimization","tag-technology"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/taxops.com\/wp-content\/uploads\/2019\/10\/cloud-computing.png","_links":{"self":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/3708","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/comments?post=3708"}],"version-history":[{"count":3,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/3708\/revisions"}],"predecessor-version":[{"id":7133,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/posts\/3708\/revisions\/7133"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/media\/3709"}],"wp:attachment":[{"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/media?parent=3708"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/categories?post=3708"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/taxops.com\/wp-json\/wp\/v2\/tags?post=3708"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}