Description of Cloud Expenses That Can Qualify for the R&D Credit
Cloud Computing Expenses
There are some expenses that are related to cloud computing that may qualify as a qualified research expense per IRS Guidelines. To be considered as a qualified expense, the activities conducted on these servers must pass the IRS’ 4 Part Test guidelines.
For example, if a software developer uses their cloud environment to perform their development work & also performs their beta testing of their pre-released software programs, the expense related to these activities would likely qualify as a qualified research expense.
If the activities conducted on these servers pass the IRS' 4 Part Test, the cloud computing expenses must also meet the following criteria to be deemed eligible:
- The servers rented must be in the US (ex. AWS, GCP, Microsoft Azure)
- The servers must not be located on the company’s premises
- Your company must be the primary user for the servers that are rented
These common cloud computing expenses would likely not qualify, per IRS guidelines:
- Cloud-based softwares (Heroku, Salesforce, Oracle)
- Any servers rented overseas
- Hosting a web-based platform for customer use