Video Game Development R&D Tax Credits

Stay-at-home orders during COVID-19 significantly boosted video game sales, and this extraordinary rise is expected to continue. But that is not surprising, considering that today 215.5 million Americans, or 66% of the entire population, play video games. In fact, the global gaming market is expected to reach $545.98 billion by 2028, with a CAGR of 13.20% between 2021 and 2028, increasing market competitiveness.

That means video game developers must face big challenges to remain relevant in the industry. As a result, many of them have used advanced technologies like facial recognition, gesture control, VR, AR, wearable gaming, and amazing graphics to satisfy customer requirements. Fortunately, many of these operations qualify for the Video Game Development research and development tax credit. The incentive helps eligible firms recoup up to 22% of the qualifying expenditures.

Qualifying Costs and Activities

Generally speaking, R&D activities include any operation that supports developing or improving products, platforms, formulae, software, processes, or procedures. When it comes to the Video Game Development R&D tax credit, those activities would be:

• Video game design and development;

• Creating immersive game stories;

• Optimizing new or existing prototypes;

• System development (for example, weapons, game environment, etc.);

• Improving the gaming experience (for example, teams, awards, and levels).

For the purposes of the credit, these activities are regarded as payroll costs. That implies that the credit lowers a company’s tax burden based on the amount spent on R&D wages. Supplies (such as cloud hosting and drawing software) are considered an extension of those HR expenditures, while equipment (such as hard drives and computers) is not. In any case, you can use the incentive to cover salaries for game designers, computer programmers, QA and audio engineers, software developers, animators, and UI/UX developers.

Contact our specialists to find out more about the R&D tax credit in the Video Game Development industry or request a complimentary credit estimate. We will take into account your company’s unique values, goals, and resources to create a customized approach that will maximize your claim.

FAQs

What kind of companies can apply?

Video game developers that conduct qualifying research activities.

What data do I need to calculate credit?

Claim period gross receipts.

What information do I need to provide?

General ledger expense detail, payroll records, project notes, project lists, emails, purchase orders, and other documents regarding QREs for the claiming period.

Is credit carryforward an option?

Yes, up to twenty years.