Section 174

woman working on a computer

The Tax Cuts and Jobs Act (“TCJA”) amended Section 174 for tax years beginning after December 31, 2021. Taxpayers are now required to capitalize and amortize qualifying specified research and experimental (R&E) expenditures.  Historically, taxpayers were able to deduct these expenses in the year incurred.

Amortization for domestic R&E expenses is five years while foreign R&E expenses must be amortized over a fifteen-year period.

The TCJA amended the definition of R&E expenses under Section 174 to include any amounts paid or incurred in connection with the development of any software and is a broader definition for qualifying expenses than what is eligible for the R&D tax credit.

The new rules under Section 174 may be confusing for some taxpayers.  Let Monetek assist with identifying those expenditures that must be capitalized each tax year.

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