Is the software you are developing eligible for the Research and Development tax credit? (Below I have extracted a summary of what is "qualifying" for the R&D credit) Let me know if it is eligble and I can further provide you with some answers.
The 1986 Tax Reform Act targeted the definition of qualified research with respect to which the credit is allowed. Initially, the term "qualified research" is defined as research with respect to which expenditures may be treated as expenses under section 174. In addition, section 41(d) sets forth three other requirements, some of which have been subject to extensive controversies between the IRS and taxpayers. Specifically, to constitute qualified research:
This definition is relatively broad and encompasses such activities as: