Comment by dcow
3 years ago
You asked for advice and are ignoring it. ~~Don’t take the R&D credit.~~ Don't use Section 174. Problem solved.
EDIT:
Let me elaborate: unless you are in the “start up phase” incurring startup costs, you are not required to follow section 174. I suspect the confusion is between how we use “startup” colloquially vs how the IRC uses “startup costs”. Once your business is up and running you are “carrying on” business, even if you aren't yet making a profit. You are only required to follow section 174 if you are choosing to classify your expenses as “startup costs” which in my experience would be very odd after the first year and even after the business is founded.
Not an accountant of course, but nobody is going to tell me to pay taxes on revenue before expenses. And writing software does not automatically mean you are doing R&D. Not even in spirit. If you’re writing a script that speeds up part of your business and makes you more money, thats not “R&E”. It’s just work.
EDIT2:
> In the meantime, the Section 174 amendment should not cause established taxpayers to adjust their accounting methods when applying Section 162. Existing taxpayers incurring R&E costs as part of their ordinary and necessary expenses while carrying on a trade or business can continue to make deductions with confidence that legislative and judicial history support that practice.
https://news.bloombergtax.com/tax-insights-and-commentary/ch...
Again, I agree with everything you are saying in your edit. It's just not what my CPA is saying the actual tax code says anymore.
Honestly my main reason for starting this discussion was a) to see if anyone else's professional advice (e.g. from a CPA) was different, and b) to hopefully drum up awareness so maybe in some roundabout fashion this gets changed.
That's all fair. You're pretty persistently knocking down alternative interpretations as "not what my CPA said", though. Maybe just let them be and let people draw their own conclusions since this is a discussion. Idk. People are trying to help out and you just keep saying "not what my CPA said". Obviously we should be having this discussion with your CPA, then (:
If anyone knows of a CPA who thinks this isn't how it works now, please let me know their contact info, as I would love to pay them to advise me on this and get a third opinion.
1 reply →
I don’t think your interpretation is correct. All R&E costs are now required to be capitalized. “Ordinary R&E” related to 162 doesn’t exist. If it’s any sort of R&E related expense, it’s technically supposed to be capitalized.