Unlocking R&D Tax Credits for FinTech Innovation

Financial technology (FinTech) companies are at the forefront of innovation, leveraging technical advances to transform financial services. As such, FinTech companies can benefit from research and development tax credits. 

The financial technology (FinTech) industry is at the forefront of innovation, leveraging advanced software, artificial intelligence, blockchain, and cloud computing to transform financial services. Because of these advancements, FinTech companies can significantly benefit from research and development (R&D) tax credits, which provide valuable incentives for businesses investing in technological development. This article explores how FinTech companies can unlock and maximize R&D tax credits to fuel even further innovation.

Qualifying R&D Activities in FinTech

R&D tax credits are government incentives designed to reward companies for investing in research and development. These credits can offset corporate taxes or, in some cases, result in cash refunds. Eligible activities typically involve the development of new or improved software, systems, and algorithms.

Many FinTech companies engage in R&D without realizing their activities may qualify for tax credits. Here are a few key areas of eligibility:

• Software Development – Building proprietary financial platforms, mobile banking applications, and automated trading systems.
• AI and Machine Learning – Developing predictive analytics models, fraud detection systems, and AI-powered chatbots.
• Blockchain and Cryptography – Creating secure digital payment systems and blockchain-based financial products.
• Cybersecurity – Enhancing encryption protocols, identity verification processes, and anti-fraud measures.
• Cloud Computing and Infrastructure – Optimizing scalable cloud-based architectures for financial applications.
• Compliance and Regulatory Technology (RegTech) – Developing technology-driven solutions to streamline regulatory compliance and risk assessment.

Key R&D Expenses that Qualify

To claim R&D tax credits, FinTech companies must track and document their eligible expenses. These include the following:

• Employee Wages – Salaries of engineers, developers, and data scientists engaged in R&D activities such as prototyping and testing related to software trials, beta testing, and model refinements.
• Contractor Costs – Payments to external experts contributing to software and system development.
• Cloud Hosting and Computing – Costs associated with cloud services used for development and testing.

How to Claim R&D Tax Credits

Before filing for an R&D credit, you must ensure everything is in proper order. First and foremost, you must identify qualifying activities. Ensure your projects meet the requirements for technological innovation and problem-solving.

If you clear the above hurdle, document all R&D work. Maintain detailed records of software development, testing phases, and technical uncertainties addressed.

To get a credit, you have to track your R&D expenses. Record personnel costs, cloud computing charges, and any other relevant expenditures.

Finally, understand that filing for a credit may be beyond your level of expertise. Work with tax professionals, especially R&D tax credit specialists, to ensure compliance and maximize your claim.

FinTech companies investing in innovation should take full advantage of R&D tax credits to reduce costs and reinvest in cutting-edge solutions. By understanding eligibility requirements, tracking expenses diligently, and consulting with tax professionals, FinTech businesses can unlock significant financial incentives that support continued technological advancements.

Samantha Wenden is a senior R&D consultant at EPSA USA, where she helps businesses maximize their R&D tax credit benefits. With years of experience in both national tax advisory and accounting firms, Wenden specializes in the software and technology sectors, including AI, cloud computing, and emerging technologies. She is known for her ability to simplify complex tax credit processes and build strong, collaborative relationships with clients.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.