RALEIGH, N.C. - September 4th, 2026 - Software companies spend much of their operating budget on exactly the kind of work the federal R&D tax credit was designed to reward — yet fewer than 30% of eligible small businesses claim it, according to Armanino’s analysis of small business tax credit utilization. K-38 Consulting, which provides R&D tax credit services to SaaS clients, says the gap is especially pronounced in software because founders frequently don’t recognize their own engineering work as “research” in the way the tax code defines it.
“Ask a SaaS founder if they do R&D and a lot of them will say no, because they picture a lab, not a sprint board,” said Dallas Alford IV, CPA, Founder of K-38 Consulting. “But building new features, improving system architecture, solving performance and scalability problems — that’s exactly the kind of technical work that qualifies. The credit isn’t reserved for hardware or biotech. Software development is one of the most common qualifying activities there is.”
What Actually Qualifies for SaaS Companies
The federal R&D tax credit applies to a broad range of technical work aimed at developing new or improved products, processes, or software — a definition that covers far more of a typical SaaS engineering roadmap than most founders assume. K-38 Consulting says common qualifying activities for software companies include:
Core product development. Building new features, modules, or product capabilities that involve resolving technical uncertainty — not just implementing well-understood, off-the-shelf functionality — typically qualifies.
Architecture and infrastructure improvements. Work aimed at improving system performance, scalability, security, or reliability, including significant backend refactoring or infrastructure redesign, is a commonly overlooked category of qualifying activity.
API and integration development. Building novel integrations or APIs that require solving genuine technical problems, rather than following a documented, standard implementation pattern, can also qualify.
Failed or abandoned development efforts. Because the credit is tied to the research process rather than the outcome, engineering work that didn’t ultimately ship or succeed can still qualify, as long as it involved genuine technical uncertainty resolution.
“The credit rewards the process of solving hard technical problems, not just the products that make it to production,” Alford said. “A lot of the most credit-eligible work at a SaaS company is exactly the work that gets deprioritized, shelved, or rebuilt from scratch — founders assume that means it doesn’t count, when often the opposite is true.”
Why the Payroll Tax Offset Matters So Much for SaaS Startups
For early-stage SaaS companies operating at a loss, the R&D tax credit carries a benefit that goes beyond a typical income tax deduction. Since the 2015 PATH Act, qualifying startups have been able to apply the R&D credit directly against payroll tax liability — a critical feature for companies with little or no income tax owed. The Inflation Reduction Act later doubled that payroll tax offset cap from $250,000 to $500,000, meaningfully increasing the potential cash benefit available to pre-revenue and early-revenue SaaS startups.
“This is one of the only tax incentives where profitability isn’t a prerequisite for the benefit,” Alford said. “A SaaS startup running payroll and doing real engineering work can capture meaningful cash savings through this credit well before the company turns a profit — which makes it one of the more overlooked sources of non-dilutive funding available to founders.”
Common Reasons SaaS Companies Miss the Credit
K-38 Consulting identifies a few recurring reasons SaaS founders leave this credit unclaimed:
Assuming “everyday” engineering doesn’t qualify. Founders often mentally reserve “R&D” for breakthrough innovation, when the tax code’s definition covers a much broader range of technical problem-solving.
Underestimating documentation requirements. Some founders are aware of the credit but avoid claiming it because they’re unsure how to properly document qualifying activities, particularly for a fast-moving engineering team that isn’t tracking time by project.
Missing state-level credits. Most states with an income tax offer their own R&D credit stacked on top of the federal credit — a second, often-overlooked opportunity for SaaS companies that only pursue the federal claim.
Never revisiting eligibility after early-stage growth. A SaaS company’s qualifying activity often evolves as its engineering priorities shift, and founders who checked eligibility once, early on, may be missing credits available for more recent development work.
What K-38 Consulting Recommends
Based on the gaps it sees most often among SaaS clients, K-38 Consulting recommends founders:
• Review engineering roadmap items against R&D credit criteria annually, rather than assuming a one-time eligibility check still applies.
• Build lightweight time-tracking by project for engineering teams, even at a basic level, to support documentation without adding significant overhead.
• Include infrastructure and architecture work in the eligibility review, not just new customer-facing features, since backend and scalability work frequently qualifies and is commonly overlooked.
• Check state-level R&D credits alongside the federal claim, since many SaaS companies claiming only the federal credit are missing a second layer of available savings.
• Revisit the past three years of development work, since companies that never claimed the credit may still be able to amend prior returns and capture previously missed savings.
How K-38 Consulting Supports SaaS Companies
K-38 Consulting’s R&D tax credit services help SaaS companies identify qualifying engineering work and properly document it for a defensible claim, working alongside the firm’s broader SaaS CFO services to help software companies access non-dilutive funding without adding equity dilution or debt. This work is part of K-38 Consulting’s broader outsourced CFO services, which help SaaS founders extend runway through every available lever, not just fundraising.
“This is real cash a SaaS company is often already entitled to,” Alford said. “For a startup watching every dollar of runway, that’s not a minor tax optimization — it can be the difference between a hiring decision made from strength and one made under pressure.”
About K-38 Consulting
K-38 Consulting provides fractional and outsourced CFO services, controller services, and tax strategy — including R&D tax credit and cost segregation services — to startups and midsize businesses across the country. The firm serves clients in SaaS, biotech, healthcare, law, ecommerce, CPG, construction, and real estate, delivering the financial leadership, forecasting tools, and strategic guidance typically available only to companies with a full in-house finance team. K-38 Consulting is headquartered in Raleigh, North Carolina, with clients nationwide.
Media Contact: K-38 Consulting 3809 La Costa Way, Raleigh, NC 27610 (910) 262-4412 [press contact email] https://k38consulting.com
Media Contact
Company Name: K38 Consulting, LLC
Contact Person: Dallas Alford
Email:Send Email
Phone: 9102624412
Address:3809 La Costa Way
City: Raleigh
State: NC
Country: United States
Website: https://www.k38consulting.com/
