Applying the R&D Tax Credit to Telemedicine Software
During the pandemic, telemedicine services provided important solutions to a system in crisis. They helped ease the burden on health care facilities and staff and offered individuals the care they needed. While in-person visits may have been a preference in the past, COVID-19 demonstrated the convenience and effectiveness of telemedicine for both patients and care providers. Though the health crisis has abated in many areas of the United States, caring for patients remotely through telemedicine will continue to provide important health resources, and valuable opportunities for software developers.
Tax incentives for telemedicine tools
Health care professionals are incorporating tablets, chat capabilities, and other mobile solutions to diagnose more patients in a shorter amount of time and across geographical boundaries. This demand for innovation presents opportunities for software companies, and the development of these technologies is being encouraged by Federal and state Research and Development (R&D) Tax Credits.
About the R&D Tax Credit
Enacted in 1981, the Federal R&D Tax Credit allows a credit of up to 14 percent of eligible spending for new and improved software products.
To qualify as an R&D activity, one must meet each of the following criteria:
• Technological in nature. Activities must be based on hard science.
• Qualified purpose. Activities must be intended to develop a new or improved product or process.
• Technological uncertainty. Activities must be aimed at eliminating uncertainty with respect to the development of a product or process.
• Process of experimentation. Activities must involve a systemic or iterative approach of evaluating different alternatives to eliminate ambiguity.
Eligible costs include:
• Employee wages
• Contract research expenses
Software companies developing platforms to enable and improve remote health care may be able to take advantage of the R&D Tax Credit as a dollar-for-dollar tax saving for the work that they are already doing.
Software activities that may qualify for a tax credit
If your company is investing in developing telemedicine platforms, you may be able a claim an R&D Tax Credit. Though each situation is unique, development activities for the following products may qualify:
• Tools that allow physicians to view medical images and other data on mobile devices such as smartphones, tablets, and other electronic devices
• Application programming interfaces and capabilities to transfer information electronically and view electronic medical files
• Cloud-based platforms to enable health care providers to directly engage patients in an easy-to-use virtual care environment that is HIPAA compliant
• Platforms with the capabilities of linking physicians and pharmacies to allow physicians to submit a prescription electronically
• Wearable devices with sensors to provide continuous monitoring of patients and automated treatment for health conditions
• Virtual therapy platforms for online counseling
• Medical data cloud storage solutions and data security
How we can help
The pandemic put our current telemedicine capabilities to the test, and patients gave these innovations a passing grade. But we have yet to experience the true power of telemedicine. As the innovation continues and popularity grows, we can be certain of even more widespread acceptance of telemedicine. And as the need continues to increase, it appears that the various tax credits for research and development will be available to help support the work of those who develop technology in the health care sector.
MGO professionals bring over 25 years of R&D Tax Credit experience to help you identify, analyze, file, and defend your claim. We provide a no-cost eligibility analysis to determine if these tax incentives are appropriate to your situation.
*Lucia Valenzuela is a Tax Director of R&D tax services at MGO. She is a licensed California attorney focused on helping clients identify and substantiate Research and Development (R&D) Tax Credits as well as defend their R&D credit claims against the IRS and State taxing authorities. Lucia has extensive experience in various industries, including, software and technology, manufacturing, cosmetics, agriculture, and life sciences. Contact Lucia at LValenzuela@MGOCPA.com. *