Posted by Jeffrey Feingold on 03.20.25

Video games have become a popular form of entertainment over the past several decades, and the gaming market is projected to continue its growth. As video games have become more technically complex, software developers have had to enhance graphics, improve performance, and create new features. The nature of game development makes game developers strong candidates for Research and Development (R&D) tax credits. These tax credits encourage innovation by allowing companies to claim up to 22% of their qualified research expenses (QREs) as tax
credits.

Examples of Qualifying Research Activities (QRAs)

Developing New Titles

When developing a new title, several activities may qualify as QRAs. These include:

• Developing algorithms
• System development (game environment and items)
• Improving the gaming experience (the user interface, controls, camera)
• Designing characters
• Concept development (researching hardware and evaluating the technical feasibility of new products)

These activities meet the IRS four-part test for QRAs, as they are technological in nature, aim to reduce uncertainty, improve business components, and utilize an experimental process.

Developing Hardware
The development of new hardware involves several technology-focused activities, including:

• Designing components such as processors (CPUs), graphics cards (GPUs), memory (RAM), and hard drives
• Developing improved graphics
• Enhancing online features
• Creating new accessories, peripheral hardware, and controllers

Beta Testing or Prototyping

Beta testing allows end-users to provide feedback on a product's functionality, usability, reliability, and compatibility. After analyzing user feedback, developers can continue their R&D to improve various aspects of the game. Prototyping involves approximating a video game's elements, such as size, properties, position, and actions. Various methods, including paper prototypes, wireframes, and grey boxing, can be used. Regardless of the technique, these activities can help game developers qualify for R&D tax credits. It is important to note that R&D efforts in gaming software development does not need to be successful to qualify for R&D tax credits. Developers only need to demonstrate that they are engaging in R&D activities. How does my gaming software company qualify? These tax incentives are not just for the big companies. They are powerful ways to
maximize after-tax profits for startup software developers and independent game companies, too. A simple four-part test helps to determine qualified R&D activity:

• Does your company undertake activity intended to develop a new or improved software product or process for yourself or your customer?
• Is this activity technical in nature (computer science counts)?
• Does this activity seek to eliminate technical uncertainty (this can be uncertainty as to technological feasibility but it does not have to mean the potential of failure to succeed - instead, the uncertainty can also mean as to the nature of the design/design elements)
• Does this activity follow a process of experimentation (this is essentially your efforts to overcome the uncertainty and to attempt to succeed in your efforts to make something new or improved or to develop a new or improve an existing process)?

Software development activities that could qualify:

• Designing software, databases, upgrades, new features
• Flow charting
• Testing different coding solutions
• Beta testing or prototyping
• Debugging and patching
• Optimization of code

Talk to your CPA about these qualifications, or contact Tax Point Advisors for a free, no-risk, no-obligation estimate of tax savings. Several requirements must be met to qualify, but the savings is worth the investment of time and energy to investigate it. When filing a claim for R&D tax credits, it is essential to maintain detailed records related to the R&D activities performed by all team members. This documentation should include payroll records, timesheets, and training materials.

There is much to consider for gaming software developers applying for R&D tax credits. Tax Point Advisors helps identify all applicable tax credits for your business.

Request a free assessment to determine qualifying R&D tax credit eligibility

Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with CPAs and their business clients who may qualify for R&D tax benefits. For more information, read our e-book: A CPA's Guide to Building a Viable R&D Tax Credit Niche, contact us at (800) 260-4138, or please fill out the form below.