For startups and bootstrapped companies, there's an extremely ugly new change starting in tax year 2022. Or is there?<p>Section 174 was rewritten in the TCJA so that seemingly all R&D costs must now be amortized over 5 to 15 years versus immediately deducted as a business expense. Moreover, Section 174 explicitly notes that "any software [development] shall be treated as a research or experimental expenditure."<p>If you search around, there's a ton of hand-wringing around this situation. On the one hand, most people thought that this would be repealed by now... but it hasn't been. On the other hand, small dev shops are parsing Section 174, Section 41, and related CFRs looking for escape hatches. For example, there's a lot of focus on language indicating "for purposes of this section" that may indicate that one can opt for dev to be a normal expense and not fall under 174 purview.<p>For more info, see:
- https://www.wsj.com/articles/small-businesses-face-big-tax-bills-from-research-deduction-change-a189b113
- https://www.law.cornell.edu/uscode/text/26/174
- https://www.journalofaccountancy.com/issues/2022/nov/amortizing-r-e-expenditures-under-tcja.html
- https://news.ycombinator.com/item?id=34627712
- https://www.law.cornell.edu/cfr/text/26/1.174-3
It sure is a mess. Everyone, including the legal and accounting experts, are trying to figure this out. Just goes to show you, no one can screw things up quite like our elected representatives. There is a bill being circulated to fix it (<a href="https://news.bloombergtax.com/daily-tax-report/senators-reintroduce-bill-restoring-and-expanding-r-d-break" rel="nofollow">https://news.bloombergtax.com/daily-tax-report/senators-rein...</a>), but who know when or if it will pass. Knowing them, they'll wait for the smoldering wreckage to appear before they do anything.