R&E Expenditures — Section 174

The Treatment of Research & Experimentation (R&E) Expenditures — Section 174

The ever-evolving landscape of tax laws can often bring both challenges and opportunities for businesses. Section 174 of the tax law specifically pertains to the treatment of research and experimentation (R&E) expenditures, outlining the available options for taxpayers. Prior to recent changes, this law provided taxpayers with a choice; either deduct R&E expenditures immediately (Section 174(a)) or opt for deferred expensing and amortization of the costs over a minimum period of 60 months, beginning with the month that the taxpayer first realizes benefits from those expenditures (Section 174(b)). Considering the recent modifications to this part of the tax law, it is vital to stay informed about the related implications and opportunities.

At Anchin, we understand the significance of Section 174 and its impact on businesses. Our team of experts is dedicated to helping you navigate these changes effectively, ensuring that you maximize your R&D tax benefits while remaining compliant with the latest regulations. Here are some key things to know about Section 174:

  • Effective for tax years beginning after December 31, 2021, taxpayers are required to spread out their R&E expenses over 5 years for domestic expenses and 15 years for foreign expenses instead of being able to deduct costs immediately.
  • Taxpayers should develop tax planning strategies to minimize the impact of the new amortization rules.
  • Allocation of R&D activities between the U.S. and foreign jurisdictions can affect amortization periods and eligibility for the R&D tax credit.

Stay updated on any changes or updates to Section 174 and their impact on proper treatment of your R&D expenditures, and consult with your tax advisor for personalized guidance. If you have questions, please contact Yair Holtzman, Partner and Leader of Anchin’s Research & Development Tax Credits group, or your Anchin Relationship Partner.