Video games have become popular entertainment over the last several decades, and the gaming market is projected to continue growing. As video games have gotten more technically complex, developers have had to improve graphics and performance and create new features. The nature of game development makes game developers suitable candidates to claim R&D tax credits. R&D tax credits are tax savings that encourage innovation by being able to claim up to 22% of qualified research expenses (QREs) as tax credits.

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Examples of qualifying research activities (QRAs) include,

Developing New Titles

Every time a new title begins development, there are several activities during the process that are considered QRAs, including:

  • Developing algorithms
  • System development (game environment, items)
  • Improving the gaming experience (i.e., user interface, controls, camera)
  • Designing characters
  • Concept development (researching hardware, evaluating the technical feasibility of new products)

These activities fit the IRS’ four-part test for QRAs as they are technological in nature, try to eliminate uncertainty, improve business components, and utilize an experimental process.

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Developing Hardware

Developing new hardware requires game developers to perform several technologically oriented activities, including:

  • Designing components such as processors (CPUs), video cards (GPUs), memory (RAM), and hard drives
  • Developing improved graphics
  • Improving online features
  • Creating new accessories, peripheral hardware, and controllers

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Beta Testing or Prototyping

Beta testing allows an end-user to provide input on a product’s functionality, usability, reliability, and compatibility. After receiving user feedback, developers can continue to perform R&D to improve aspects of development.

Prototyping approximates a video game’s aspects, such as size, properties, position, and actions. There are several methods, including paper, wireframe, and greybox. Regardless of the technique, these activities can help game developers claim R&D tax credits for their development efforts.

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It is crucial to note that R&D in game development does not need to be successful to qualify for R&D Tax credits. A developer only needs to verify that they are performing R&D activities.

Another aspect of the R&D claims process is reporting the job titles of everyone involved in R&D. Some standard job titles of R&D include:

  • Software Engineers
  • Software Developers
  • Quality Assurance Testers
  • Programmers
  • Animators
  • Audio Engineers
  • Game Designers

When filing a claim for R&D tax credits, it is essential to keep records related to the R&D activity everyone performs. This includes payroll documents, timesheets, and training.

There is much to consider for game developers applying for R&D tax credits. MainStreet searches through all tax credits and finds the ones that apply to your business. Contact us to learn more.

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