How Can Gaming Companies Benefit?
In this past decade, the world of video game development has exploded into a multi-billion dollar global industry. With millions of Americans partaking in gameplay daily, more companies are dedicating a significant amount of their budgets to creating new games, downloadable content (DLCs) and sequels to their successors—many of these costs can qualify for the Research and Development (R&D) Tax Credit. This credit is a dollar-for-dollar offset of income and/or payroll tax liability for companies performing innovative activities within the United States and can be applicable on both the federal and state level.
Receiving the Credit
The R&D Tax Credit allows companies to reduce their income tax liability in the current tax year, and receive a cash refund for taxes paid in the last three (3) years. If there is no income tax liability the credit can be carried forward for up to 20 years. Many states have implemented their own version of the R&D Credit, and qualifying companies can claim both!
The Payroll Tax Credit is a federal incentive that allows qualifying small businesses to reduce the company's share of their FICA payroll tax liability. Improving cash flow at a critical time for small businesses. It was created in December 2015 through the Path Act to benefit younger companies with no or a very small income tax liability. The Payroll Tax Credit can be claimed for a maximum of 5 years by a Qualified Small Business. To be considered a Qualified Small Business, your company must be within a 5 year window since gross receipts were first incurred and the gross receipts must be below $5M per year. Each year you can claim a maximum of $250K, or a total of $1.25M across the 5 years.
Examples of Qualifying R&D Activities in the Gaming Industry:
- Development in mixed realities
- Motion capture
- Algorithm design
- C++ framework development
- HTML 5 Coding
- Beta testing or prototyping
- Image processing and reconstruction
- Cross-platform compatibility design
- And probably a lot of other things you are doing that haven't made it on this list!
Our dedicated game development team is comprised of highly experienced software engineers , tax accountants, and attorneys, all of whom are passionate about gaming and equipped to help your business realize the potential of the R&D credit to incentivize further innovation investment. Contact us today at firstname.lastname@example.org.