Tracking R&E Expenses in Preparation for New Section 174 Amortization Rules
Why your business needs to be doing this
As of January 2022, businesses are no longer permitted to deduct research and experimentation (R&E) expenses in full in the year they were incurred. Under the 2017 Tax Cuts and Jobs Act (TCJA), the IRS now requires business owners to amortize these expenses over a period of years. Previously, businesses could deduct R&E expenses in the year they were incurred.
The recent changes to Section 174 will likely increase companies’ taxable income and decrease their cash flow depending on the amount, frequency and location of their R&E related expenses. U.S. companies sending their research and development (R&D) work overseas will experience a greater impact, as their amortization period will be longer.
Starting in 2022:
- Section 174 expenses associated with research conducted in the U.S. will be capitalized and amortized over a 5-year period.
- Section 174 expenses associated with research conducted outside the U.S. will be capitalized and amortized over a 15-year period.
Please select this link to read the complete article from OSAP Strategic Partner Clark Schaefer Hackett (CSH).