R&D Tax Credit for Agencies and Professional Services

Agencies and professional services firms that build proprietary technology — internal tools, data platforms, automation systems, or technical products — may qualify for the R&D tax credit on that development work.

What qualifies

The R&D credit applies to agencies when their work meets the four-part test. Client deliverables rarely qualify (the client is typically the one bearing the financial risk — see funded research). But proprietary technology developed for the agency's own use or for productization often does.

Common qualifying activities

Proprietary software and tools

Building internal platforms that automate client delivery where the design involves solving technical problems
Developing proprietary analytics, reporting, or data visualization tools with novel technical requirements
Creating content management, workflow, or project management systems with features that require experimentation to implement
Building API integrations where data mapping, synchronization, or error handling present uncertain technical challenges

Data and analytics platforms

Developing data processing pipelines where volume, variety, or velocity create engineering challenges
Building machine learning models for audience targeting, attribution, or prediction where accuracy is uncertain
Creating data warehousing solutions where schema design, query performance, or data quality require iterative approaches
Developing real-time data processing systems where latency and reliability requirements push technical boundaries

Automation and AI

Building automated content generation or optimization systems where output quality is uncertain
Developing chatbots or conversational AI tools that require solving natural language processing challenges
Creating automated testing, monitoring, or reporting systems with novel technical requirements
Developing robotic process automation (RPA) solutions for complex, multi-system workflows

Product development

Building SaaS products or platforms that the agency offers as a product line
Developing white-label technology platforms where performance, scalability, or feature requirements involve technical uncertainty
Creating mobile applications with novel interaction models or performance requirements

What does not qualify

Client services delivered using established tools and methods
Creative work — design, copywriting, strategy, and campaign development (social sciences and arts exclusion)
Implementing third-party software or configuring existing platforms
Routine website development using known frameworks and patterns
Project management and account management activities

The funded research question

Work performed under a client contract where the client bears the financial risk is generally considered funded research and does not generate QREs for the agency. The credit is meant for research where the taxpayer bears the risk of failure.

If the agency is developing technology at its own expense and risk — even if it will eventually be used in client work — that development may qualify. The distinction is who bears the cost if the R&D effort fails.

Qualifying expenses

Agency QREs are primarily wages — developer, engineer, and data scientist time spent on qualifying proprietary development. Contract development may also qualify if outside developers or engineers perform qualifying work on the agency's behalf.

What Qualifies — the four-part test in detail
Common Disqualifiers — funded research and other exclusions
Qualified Research Expenses — what expenses count
Estimate your credit — free calculator