Notification Of Change To Tax Accounting For Research Expenses
RESEARCH EXPENSES
Under the Tax Cuts and Jobs Act (TCJA), for taxable years beginning after December 31, 2021, specified research or experimental expenditures must be capitalized and amortized over five years (15 years for expenditures which are attributable to research conducted outside the United States). Under the TCJA provision, all research expenses are amortized beginning with the midpoint of the taxable year in which such expenses are paid or incurred.
Defining research and experimental expenditures
For taxable years beginning before January 1, 2022, it didn’t matter much whether a taxpayer classified an expenditure as an ordinary and necessary business expense or as research and experimental (R&E) expenditures because either way, the taxpayer could deduct the full amount in the year it was incurred.
But, with the TCJA’s requirement that research and experimental expenses must be amortized and capitalized for taxable years beginning after December 31, 2021, the classification becomes very important.
The IRS defines research and experimental expenditures as research and development costs in the experimental or laboratory sense, which include all costs that are incident to the development or improvement of a product.
The regulations do not provide an exhaustive list of what constitutes research and experimental expenditures. However, the regulations […]
