The R&D Tax Credit is back! Find out how the Big Beautiful Bill Act can fund your R&D. Learn More
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When people think about innovation, they often picture brand-new products or breakthrough features.
But ask any engineering team what they're working on, and you'll hear a different story.
Many sprints are dedicated to improving what already exists. Refactoring legacy code, upgrading infrastructure, improving application performance, or replacing outdated systems may not make the release notes, but they often play a critical role in keeping a product reliable and scalable.
The good news?
These projects may still qualify for the federal R&D tax credit.
If your team is solving technical problems, experimenting with different approaches, or overcoming uncertainty, the IRS may view that work as qualified research, even if customers never notice the changes.
Technical debt refers to the cost of maintaining or improving software after earlier development decisions.
Over time, systems become harder to maintain. Code grows more complex, infrastructure becomes outdated, and performance bottlenecks emerge.
Addressing technical debt often involves projects such as:
These projects may not generate new revenue directly, but they're often essential for long-term product development.
Sometimes.
The IRS doesn't require work to result in a new product or customer-facing feature. Instead, it looks at how the work was performed.
A project may qualify if it involves:
Simply cleaning up code isn't enough.
However, if engineers are solving complex technical problems or determining the best way to improve an existing system, portions of that work may qualify.
Every project is different, but here are a few common examples.
A growing software company decides to refactor a legacy application that's become difficult to maintain.
The team evaluates multiple architectural approaches, rewrites core modules, and tests different implementations to improve scalability without disrupting existing functionality.
Because the project involves technical uncertainty and experimentation, portions of the work may qualify.
A company migrates from on-premise infrastructure to a cloud-native environment.
The migration requires redesigning deployment pipelines, optimizing resource allocation, and solving compatibility issues across multiple services.
Although customers may never notice the change, engineers are performing technical work that could support an R&D credit.
An application begins slowing as the customer base grows.
Engineers test multiple caching strategies, redesign database queries, and benchmark different solutions to improve response times.
Improving performance often involves experimentation, making these projects worth evaluating for R&D eligibility.
Not every qualifying project is customer-facing.
Companies frequently rebuild internal tools, automate workflows, or replace aging systems to improve reliability and efficiency.
If the work requires engineers to resolve technical uncertainty through experimentation, it may qualify under the same principles as external product development.
Not every technical debt project meets the IRS requirements.
Generally, activities that are purely routine or administrative are less likely to qualify.
Examples include:
The key distinction is whether engineers needed to solve technical challenges rather than simply complete routine work.
Many companies miss R&D opportunities because they only associate qualifying work with new product development.
In reality, engineering teams often document technical debt projects the same way they document feature work.
Useful documentation may include:
You don't need to create entirely new documentation.
Much of the evidence may already exist within your development process.
Technical debt rarely gets the same attention as launching a new product.
Leadership often views these initiatives as maintenance rather than innovation.
As a result, companies may never evaluate them during an R&D study.
Common misconceptions include:
None of those statements automatically disqualify a project.
The question isn't whether the work was visible.
It's whether engineers faced technical uncertainty and experimented to resolve it.
Technical debt projects don't automatically qualify for the R&D tax credit, but they shouldn't be dismissed either.
If engineers are solving technical uncertainty through experimentation, activities like refactoring legacy code, modernizing infrastructure, improving performance, or redesigning internal systems may represent qualified research under IRS guidelines.
Reviewing these projects alongside traditional product development can help companies identify R&D opportunities they might otherwise overlook.
It can. Refactoring may qualify if engineers are resolving technical uncertainty, evaluating different approaches, or developing new technical solutions. Routine code cleanup without experimentation generally does not qualify.
Some do. Projects involving architectural redesigns, cloud migrations, scalability improvements, or performance optimization may qualify if they involve technical experimentation.
No. The IRS evaluates the development process, not whether customers see the final result. Many internal improvements may qualify if they meet the requirements for qualified research.
Engineering documentation such as sprint tickets, technical specifications, architecture diagrams, testing records, and design reviews can all help support an R&D credit study.
Innovation isn't always about building something brand new.
Sometimes it's about making existing systems faster, more reliable, and better equipped for future growth.
Those efforts often require the same engineering expertise, experimentation, and technical problem solving as developing a new product. Yet many businesses overlook them when evaluating their R&D tax credit eligibility.
If your engineering team spends significant time addressing technical debt, it may be worth taking a closer look before assuming that work doesn't qualify.
Don't Overlook the Engineering Work You're Already Doing
Many companies focus on new product development when evaluating the R&D tax credit, but valuable opportunities can also exist within infrastructure improvements, refactoring projects, and system modernization efforts.
TaxTaker helps businesses identify qualifying activities, estimate potential savings, and document the technical work needed to support a strong R&D tax credit claim.
Book a call with TaxTaker to find out whether your technical debt projects could qualify for the R&D tax credit.
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Rachel Darrough is a Sr. R&D Manager with nearly 10 years of experience conducting federal and state R&D tax credit studies across various industry types, e.g., manufacturing, software, engineering, and construction. Rachel received a Bachelor's Degree in Managerial Finance and brings a strong technical foundation to evaluating qualified research activities, technical uncertainty, and experimentation under IRC §41. At Tax Taker, Rachel manages R&D engagements by collaborating with technical and finance teams to identify qualified expenditures, substantiate eligibility, and optimize credit outcomes. She applies an analytical approach to documentation and methodology while ensuring compliance with IRS guidance. Rachel is committed to helping clients leverage innovation-driven incentives to reduce tax liability and reinvest in continued R&D.
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