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Industry tax guide

Technology and software tax and accounting

Tax planning for companies that build software and plan to grow fast.

Technology & Software business environment

Software and technology companies spend most of their money on engineers, sell subscriptions in many states, and raise equity on the way to an exit or an IPO.

The tax rules that matter most are about research costs, credits that can offset payroll tax before the company is profitable, stock that may qualify for the QSBS exclusion, and sales tax on digital products.

Compared with a general business

What makes taxes different for technology and software

Software development is research

Most engineering spending is research expenditure under Section 174A, deductible right away again from 2025.

Sales tax on digital products

States treat SaaS, downloaded software and digital services differently; many tax them.

Equity compensation

Stock options, RSUs and 83(b) elections drive payroll and personal tax for employees and founders.

QSBS planning

C corporation stock may qualify for the gain exclusion, which affects entity choice from day one.

The rules in detail

Tax rules for technology and software

Research costs and Section 174A

Domestic software development costs are deductible right away for tax years starting in 2025, ending five years of mandatory amortization. Companies with average gross receipts of $31 million or less can also apply the change to 2022 through 2024 by amending or electing.

Research credit against payroll tax

Building new features, architectures and algorithms often qualifies for the research credit. Startups with under $5 million in gross receipts can apply up to $500,000 a year against payroll taxes.

QSBS and sales tax on SaaS

Founders and investors in a C corporation may exclude gain on qualified small business stock; stock issued after July 4, 2025 qualifies for a partial exclusion after three years and full exclusion after five. Many states tax SaaS, and economic nexus can start from sales alone.

Planning moves

Ways to save tax in technology and software

  1. Claim the research credit every year

    Including the payroll tax offset for startups.

  2. Amend 2022 to 2024 if eligible

    Small businesses can recover amortized research costs.

  3. Keep QSBS eligibility

    Stock issuance, redemptions and asset limits are monitored.

  4. File 83(b) elections on time

    Founders with restricted stock file within 30 days of the grant.

  5. Register for sales tax only where required

    Nexus is tracked by state so you register where needed, not everywhere.

  6. Plan the exit

    Asset versus stock sale and QSBS are modeled before a letter of intent.

Working with OICPA

How we help

Service

Claim the research credit every year

Engineering time and cloud costs documented and claimed, including the payroll tax offset.

R&D Tax Credit
Service

Sales tax on subscriptions

Nexus review, registrations and filings in the states that tax software and digital services.

Sales Tax Nexus & Registration

Bookkeeping and reporting

The accounting behind the tax work

Reconcile recurring revenue and cash runway, then coordinate tax planning for development activity, hiring, and ownership changes.

The operating challenge

Subscriptions, deferred revenue, cloud costs, development projects, and equity compensation can outgrow a simple cash-in, cash-out view.

The records that matter

Subscription reports, customer contracts, development cost records, capitalization tables, and payroll data give the review a practical starting point. We identify missing information before recommending changes.

What you can expect

  • A prioritized review of the industry-specific accounting issues above
  • A tailored reporting and document checklist based on your operating records
  • An agreed action plan connecting financial reporting, tax deadlines, and specialist coordination

Frequently asked questions

Should we amend 2022 to 2024 for Section 174A?

If you are a small business under the gross receipts test, often yes. It can produce refunds for years when development costs were amortized. We compare amending with catching up the remaining costs on the 2025 return.

Does our stock qualify for QSBS?

It can if the company is a C corporation with gross assets under the limit when the stock is issued and runs an active qualifying business. Software companies usually qualify; we confirm the details at each issuance.

Do we owe sales tax on SaaS?

In the states that tax it, once you pass their economic nexus threshold. We map your customers by state and register where needed.

Related articles

References

  1. 26 U.S. Code § 174A: Domestic research or experimental expendituresLegal Information Institute, Cornell Law School
  2. 26 U.S. Code § 41: Credit for increasing research activitiesLegal Information Institute, Cornell Law School
  3. 26 U.S. Code § 1202: Partial exclusion for gain from certain small business stockLegal Information Institute, Cornell Law School
  4. Streamlined Sales and Use Tax AgreementStreamlined Sales Tax Governing Board

Rules reflect federal tax law as of November 2026.