“AI tax incentives” is one of the most practical searches a US business can make — because unlike most “AI grants,” tax incentives are broadly accessible and don’t require winning a competition. Here’s the honest 2026 picture of what actually applies, cited to official sources, and what doesn’t qualify. (dgm builds the AI; your CPA captures the incentives — see the end.)

The big lever: the R&D tax credit + Section 174A

If your business builds or customizes AI — not just buys it — the most valuable tax lever is the combination of the federal R&D tax credit and Section 174A expensing.

The R&D tax credit (IRC §41). The Credit for Increasing Research Activities rewards qualifying R&D. To qualify, activity must meet a four-part test: a new or improved business component, technical uncertainty, a process of experimentation, and a technological nature. Computer science qualifies, so developing or customizing AI can qualify. One important nuance: internal-use software faces an additional, higher “high threshold of innovation” test — so software you build to run your own operations is held to a stricter standard than software you build to sell.

Section 174A expensing. This is the big recent change. The 2025 OBBBA added Section 174A, restoring permanent immediate expensing of domestic research and experimental costs for tax years after December 31, 2024 (IRS Rev. Proc. 2025-28), reversing the prior requirement to amortize them over five years. In plain terms: your domestic AI/software development is again immediately deductible, and the credit sits alongside the deduction. Qualifying small businesses (under a gross-receipts test) may even be able to retroactively elect for earlier years — a question for your CPA.

A boost for pre-profit startups: the payroll-tax offset

A common problem: an early-stage company doing real R&D owes little or no income tax, so an income-tax credit isn’t immediately useful. The R&D credit addresses this with a payroll-tax offset for qualifying small businesses — and that cap was raised to up to $500,000 per year (from $250,000) for tax years beginning after December 31, 2025. For a pre-profit AI startup, that can convert R&D work into real, near-term cash savings against payroll-tax liability.

State R&D credits stack on top

Most states layer their own R&D credit on the federal one, so the same qualifying work can generate state benefits too:

  • California — 15% of qualified research expenses over a base (non-refundable).
  • New York — an R&D component within the Excelsior Jobs Program equal to 50% of the federal credit attributable to New York.
  • Texas — an enhanced franchise-tax R&D credit (as of 2026, after the state repealed its former R&D sales-tax-exemption option).
  • Massachusetts — 10% of qualified expenses over a base, plus 15% of basic research payments.

Roughly 35–40 states offer some form of R&D credit, with rates, refundability, and rules varying widely. See State R&D Tax Credits for Software for the detail, and confirm specifics with a state-tax specialist.

What doesn’t qualify

Be clear-eyed about the boundary: buying and deploying existing AI software is generally not a qualifying research activity. If you license an AI tool and roll it out, that’s adoption, not R&D, and it doesn’t generate the R&D credit. The incentives reward building and improving technology under genuine technical uncertainty. If your project is pure adoption, the realistic lever is financing (an SBA loan), not a tax credit — and you should hear that plainly rather than overclaim.

A note on getting it right

R&D tax positions are fact-specific and scrutinized. Document your activities (the uncertainties, the experimentation, the people and time involved), and work with a qualified CPA or R&D-credit specialist to substantiate the claim. The upside is real, but so is the documentation standard.

How dgm helps

dgm implements osFoundry and other AI for US businesses. The tax treatment of that work belongs with your CPA — but if your engagement involves building or customizing AI (not just turning on a tool), it may generate qualifying R&D activity worth documenting. We build the AI; your CPA captures the incentives. And if your project is straightforward adoption, we’ll tell you honestly that the tax-credit story is limited and focus on delivering a system that pays for itself in results.