Don’t Overlook the R&D Tax Credit for Your Next Fintech Investment

This blog was authored by my colleague Michael De Prima, a principal in our federal tax strategies group.

Financial service companies may not seem like typical candidates for research and development (R&D) incentives, but the technology investments these organizations make can present excellent opportunities to capture the R&D tax credit.

The federal R&D credit has been in our tax code since the early 1980s and can result in a cash tax benefit of seven percent to ten percent for every dollar of qualified expense, which includes wages, consultant fees, supplies, and cloud computing costs. Additionally, many states offer valuable R&D credits to be used against their corporate or franchise taxes.

Banks and insurance companies are continually investing in new and innovative solutions to address the complex challenges they face. The industry has evolved from brick-and-mortar businesses to a digitized global network where transactions are measured in seconds.

At the heart of this impressive speed and security is leading edge software and app development – and these technology solutions can be powerful drivers of the R&D credit that increase your ROI.

Some examples of investments that may qualify for the credit include:

• Online or mobile banking applications
• Digital payment and authentication capabilities
• Database development and enhancement
• Robotic process automation and machine learning
• Data analytics
• Cybersecurity platforms
• Cryptocurrency or NFT development

Keep in mind, the R&D credit is a complicated set of rules, and credits should always be properly substantiated. However, if your organization is investing in new technology to improve operations or offer new financial products, the R&D credit should be part of your planning strategy and cost-benefit analysis.

Reach out to your CLA professional to learn how your organization can benefit from the R&D tax credit.