What Developers Should Know about Online Dating Apps and the R&D Tax Credit

It’s almost Valentine’s Day – a day of love and romance celebrated by many happy couples, and a day of annoyance for many singles.

And, it’s not just one holiday that is focused on love. Whole industries have cropped up to help people find their perfect match. In recent years, the most obvious by far is the rise of online dating. In fact, recent statistics shared by eHarmony suggest that over 40 million Americans today are using some form of online dating website or apps.

Many of these sites use modern innovations to match people with their potential perfect partner. From apps that make you swipe left or right, to detailed mathematical equations that match like-minded individuals on point-based systems, the modern dating industry is filled with new algorithmic technology that attempts to figure out what you want and don’t want in your perfect companion.

And it’s not just dating apps and algorithms — many of today’s software solutions center on the development of new or improved technologies, functionality or enhancements. And of course, since this is an R&D blog, it’s important for me to point out that much of this activity– regardless of industry- qualifies as R&D, under the IRC Sec. 41 research and development tax credit.

Here are just a few examples of the types of activity that can qualify:

  • Designing and developing new or improved technologies, architectures, algorithms or database management techniques
  • Preparing test case procedures, preparing test files, coding, compiling and refining programs
  • Prototype testing including alpha, beta, UI and UX testing
  • Revising technical specifications due to design failures or rewriting source code to resolve defects.

Without getting too far into the weeds, it’s also important to note that recently issued final regulations relating to Internal Use Software development vastly broaden the R&D credit opportunity for any company investing in the development of customer interactive software – regardless of whether the software will be sold, leased, licensed, or made available to customer’s free of charge.

Put simply, this means that dating app developers who make their software available to customers free of charge will now have the same opportunity to claim the R&D credit as those who charge customers a subscription fee. This is a huge taxpayer win that will benefit many more software development companies in the years come. (Click HERE to learn more about this topic.)

So whether your business is developing the next great dating app, or improving upon the functionality of an existing retail or finance app, know that your efforts may well qualify for the research and development tax credit.

Oh, and don’t forgot to buy flowers!

About the Author: Michael Krajcer

Michael Krajcer, JD, CPA, is founder and President of TCG. He has spent his entire 35 year career working with the Research and Development Tax Credit. This includes a decade of experience auditing businesses who claimed it, and over 20 years of experience helping U.S. companies navigate through it. He has also resolved dozens of IRS and state audits of credit claims.