Due to bipartisan support in Congress for amending the changes to Section 174, we are optimistic that a fix will be implemented, although the timing remains uncertain. Taxpayers should be mindful of any estimated tax payments that are due when filing an extension.
You are obligated to amortize any research and experimental costs that fall under the broader definition of R&E as per Section 174, irrespective of whether you claim the R&D tax credit under Section 41. The two sections operate independently; therefore, even if a taxpayer discontinues claiming the tax credits under Section 41, they cannot avoid the requirement for amortization under Section 174. Due to the increase in tax liability resulting from this amortization, claiming the R&D tax credit can serve as a way to offset some of this additional financial burden.
All costs paid or incurred in relation to software development are now categorized as Research & Experimental (R&E) expenditures under Section 174. These costs are required to be capitalized and amortized over a period of not less than 5 years.
There are no exceptions to the Section 174 changes for small businesses.
Can't find what you're looking for?
We would love to chat with you.
IRS Drops Last – Minute Guidance on §174 Research Amortization On Friday, September 8, 2023, the Internal Revenue Service (IRS)
What is Section 174? Section 174 of the Internal Revenue Code now defines the treatment of Specified Research or Experimental
Section 174 Changes Impact R&D Tax Credits for Software The new changes to Section 174 have a significant impact on
Section 174 Changes Impact R&D Tax Credits for Software The
174 UPDATE – NOTICE 2024-12 & REV PROC 2024-9 On
Understanding Section 174 and Its Impact Section 174 of the
