Most technology businesses overpay by tens of thousands every year. Here are the deductions, credits, and strategies that get overlooked.
From 2022-2025, tech companies were forced to capitalize and amortize domestic R&D expenses over 5 years under Section 174, dramatically increasing taxable income even for companies that were not profitable on a cash basis. OBBBA restored immediate expensing permanently. A tech company spending $500K on engineering salaries that was forced to deduct only $100K/year can now deduct the full $500K immediately. Small businesses (under $31M gross receipts) can also amend 2022-2024 returns to recover the previously capitalized amounts.
Every one of these applies to technology businesses. If you're not claiming them all, you're overpaying.
Writing code, developing features, improving performance, building cloud infrastructure, API integrations, data engineering, ML/AI development, and testing all qualify if technological uncertainty is involved. The payroll tax credit offset is now $500,000 for qualifying small businesses.
$75,000-$300,000/year in federal creditsExclude up to $15M (increased from $10M) in capital gains on C-Corp stock held 5+ years. Gross asset threshold increased to $75M (from $50M). Both indexed for inflation starting 2027. Must be planned from incorporation.
Potentially $3M-$5M+ in capital gains tax elimination at exitOBBBA reversed the 2022 requirement to capitalize domestic R&D over 5 years. Domestic R&D expenses can now be deducted immediately. Small businesses can retroactively amend 2022-2024 returns to recover capitalized amounts.
$100,000-$500,000+ in restored deductions for R&D-heavy companiesCalifornia, New York, Massachusetts, Texas (payroll credit), and many other states offer additional R&D credits. These stack on top of the federal credit for double benefit.
$20,000-$100,000/year in additional state creditsAWS, Azure, GCP hosting costs, SaaS tool subscriptions, and cloud infrastructure expenses are fully deductible as operating expenses. Companies sometimes capitalize these incorrectly.
$20,000-$200,000/year in properly classified deductionsISO exercises, NQSO exercises, RSU vesting, and 83(b) elections each have different tax treatment. Proper planning around exercise timing, holding periods, and AMT can save founders and early employees significant taxes.
Varies widely but can be $50K-$500K+ per equity event65% of contractor R&D expenses qualify for the R&D credit (vs. 100% for W-2 employees). Converting key contractors to employees can increase the R&D credit while the OBBBA apprenticeship credit adds $1,500/apprentice.
$10,000-$50,000/year in optimized credit calculationsFor companies providing remote work equipment (monitors, desks, chairs, internet stipends), these are deductible business expenses. Self-employed tech workers can deduct home office costs directly.
$5,000-$20,000/year depending on team sizeWrite off qualifying equipment and assets in the year you buy them, instead of spreading deductions over decades.
Most tech company assets are software-based and deducted as operating expenses or under Section 174. Section 179 is most relevant for hardware-intensive operations (data centers, IoT, hardware startups).
Learn more about bonus depreciation in 2026 →Credits reduce your tax bill dollar-for-dollar. These are the ones most commonly left on the table in technology.
Credit for software development, infrastructure engineering, ML/AI research, and testing. 6-8% of qualified research expenses for most companies.
Additional credits available in many states, stackable with federal credit.
Qualifying small businesses (under $31M gross receipts) can apply R&D credits against payroll tax, useful for pre-revenue or low-profit startups.
C-Corp is required for most VC investors and QSBS eligibility. S-Corp is optimal for profitable bootstrapped companies to save SE tax and access QBI deduction. Entity choice should be made at incorporation based on funding strategy.
SE tax savings through salary/distribution split. QBI deduction (20%) but note: technology consulting may be classified as SSTB, limiting QBI at high income. SaaS product companies are generally NOT SSTBs.
Required for QSBS ($15M exclusion + inflation indexing). Required for most VC investment. 21% flat rate on retained earnings. R&D credits offset corporate tax. Stock option plans (ISOs) only available to C-Corp employees.
Starting as LLC and converting to C-Corp or electing S-Corp is common. Default LLC subjects all profit to SE tax. Not suitable for companies planning to raise equity capital.
For a $1M-$20M revenue tech company. R&D-intensive companies with significant engineering payroll see the highest savings from federal and state R&D credits. QSBS planning generates the largest single-event savings at exit.
For businesses doing $1M–$5M in revenue
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