R&E expenses must be amortized over a 5-year (domestic) or 15-year period (international)
Mid-year convention means only 10% of an expense can be deducted in the year incurred
Software development expenses incurred after December 31, 2001 must be treated as an R&E expense and amortized
Companies amortizing for the first time do not need to file a 3115; instead, a Company can include a notice with their originally filed return
How Does 174 Differ From the R&D Credit?
The rule change to amortize 174 expenses does not affect the R&D Credit
These are two different sections of the Tax Code – 174 and Section 41 (R&D Credit)
The calculation of the R&D Credit does not change – only the accounting for the expenses related to research and experimental expenditures
Use the R&D credit to help offset the impact to your Taxable Income caused by 174 amortization
What is Included in Section 174 Expenses?
What Exactly Needs to be Amortized?
Definitive guidance has not been issued
All expenses that qualify to be included in the Section 41 Credit calculation will also be Section 174 expenses and must be amortized
Not all Section 174 expenses will qualify for the Section 41 Credit calculation
Known differences that should be included in Section 174 amortization are: the 35% of contract research costs that are not allowed for the credit calculation; legal fees for patents; depreciation and overhead expenses for R&D facilities;others depending on your specific situation
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