AI build tax calculator

Paying an outside company to build custom AI for your business is deductible in the year you pay it. The research part also earns federal and Utah R&D tax credits. Put in your numbers to see what comes back.

Try an example:

1. The outside company building the AI

An independent contractor: a separate company you hire. Its people are not your employees.

R&D means working out something new that nobody is sure will work, and testing it. Installing or running something that already works is not R&D.

The law counts 65% of what you pay a contractor for research: 65 percent of any amount paid or incurred by the taxpayer to any person (other than an employee of the taxpayer) for qualified research. Tax code §41(b)(3)(A)

2. Your own employees who help build it

People on your payroll who test the software, grade its answers, label examples or build answer keys while it is being built. Their pay for those hours counts in full. Using the finished software for their normal job does not count.

WhoPeopleHours a week eachWeeksPay per hour ($)Pay that counts

any wages paid or incurred to an employee for qualified services performed by such employee. Tax code §41(b)(2)(A)(i). That covers the actual conduct of qualified research, its immediate supervision (first-line management), and direct support such as a clerk for compiling research data. Treasury Regulation §1.41-2(c)

3. Cloud computing you pay for to build and test it

Rented servers on your own account, used for building and testing. Not the cost of running the finished software.

any amount paid or incurred to another person for the right to use computers in the conduct of qualified research. Tax code §41(b)(2)(A)(iii). The IRS has not yet ruled on charges billed per AI request.

4. Your tax rate

The tax on your last dollar of profit, federal plus state. Your accountant knows your exact number. 24 is one of the federal brackets; change it to yours.

The two R&D credit rates

6% of the research cost in a company's first years of R&D. Up to 10% with another method when R&D is large compared to sales. Companies keep 79% of it so the write-off stays whole.

7.5% for research done in Utah, limited to that year's Utah tax. Put 0 if the work is not in Utah.

The credit determined under this subparagraph shall be equal to 6 percent of the qualified research expenses for the taxable year. Tax code §41(c)(4). a tax credit equal to 7.5% of the taxpayer's qualified research expenses for the current taxable year. Utah Code 59-10-1012 and 59-7-612. The 79%: If you don't elect the reduced credit, you must reduce your domestic research or experimental expenditures under section 174A… by the amount of the research credit. IRS, Instructions for Form 6765

What comes back in taxes

That is of the you pay the AI company and for cloud computing.
Write-off
What you paid is subtracted from your income, so you save your tax rate on it.

Section 174A(a) allows taxpayers to deduct amounts paid or incurred for domestic research and experimental expenditures in tax years beginning after December 31, 2024. IRS, Instructions for Form 6765

R&D credit on the AI company's bill
R&D credit on cloud computing
R&D credit on your employees' time
Total back
What the build really costs you
What you pay, minus what comes back.

Want more back?

    The math is exact for the numbers you type in. Employee hours only count when they are real R&D work, written down as it happens. Your accountant confirms the real numbers and files the claim.

    What never counts: Direct support of research activities does not include general administrative services, or other services only indirectly of benefit to research activities. Treasury Regulation §1.41-2(c). Also Any research conducted after the beginning of commercial production of the business component and routine data collection. Tax code §41(d)(4)