Section 174 Amortization FAQs

Your Section 174 Amortization questions, answered.

Frequently Asked Questions for
Section 174 Amortization

Is a legislative fix to the Section 174 changes coming? When should I file my returns?

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.

Can I stop claiming Section 41 R&D Tax Credits to avoid Section 174 amortization?

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.

I am a software developer, how do the revisions to Section 174 affect me?

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.

Is there a small business taxpayer exception or any other exceptions?

There are no exceptions to the Section 174 changes for small businesses.

Section 174 Insights