Companies don't have a choice. The law now requires amortization of software development expenses. Even companies that don't claim R&D tax credits are affected.
I'm not a CPA but I'm pretty sure companies have a choice whether to claim Software Development as R&D expense, or as regular payroll. It sounds like this change is only affecting employers who were previously "saving" payroll tax by classifying employee cost as R&D, and claiming "R&D credits" which can no longer be amortized [0]. That is not the default tax strategy of every tech company. There is no law requiring companies to file for R&D credits. The relevant changes under discussion only affect companies who chose to file for R&D credits.
They should have known they were taking a risk by adopting that strategy. At our company, we got a bunch of spam emails offering to help us file for R&D credits - we just ignored them and continued to pay normal payroll tax.
Searching my inbox for "R&D," it seems that Gusto was the most prolific spammer in this regard - they sent dozens of emails enticing us to save tens of thousands of dollars by talking to their R&D tax specialists. They even included case studies naming specific companies and how much they "saved." In retrospect, that looks like a big oof.
2. R&E expenses (IRC 174 https://www.law.cornell.edu/uscode/text/26/174) which as of 2022 can no longer be fully deducted, but must be amortized over 5 or 15 years. IRC 174 (c)(3) explicitly states "any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure." This applies whether or not the company was treating software development as R&D under IRC 41.
Companies don't have a choice. The law now requires amortization of software development expenses. Even companies that don't claim R&D tax credits are affected.
I'm not a CPA but I'm pretty sure companies have a choice whether to claim Software Development as R&D expense, or as regular payroll. It sounds like this change is only affecting employers who were previously "saving" payroll tax by classifying employee cost as R&D, and claiming "R&D credits" which can no longer be amortized [0]. That is not the default tax strategy of every tech company. There is no law requiring companies to file for R&D credits. The relevant changes under discussion only affect companies who chose to file for R&D credits.
They should have known they were taking a risk by adopting that strategy. At our company, we got a bunch of spam emails offering to help us file for R&D credits - we just ignored them and continued to pay normal payroll tax.
Searching my inbox for "R&D," it seems that Gusto was the most prolific spammer in this regard - they sent dozens of emails enticing us to save tens of thousands of dollars by talking to their R&D tax specialists. They even included case studies naming specific companies and how much they "saved." In retrospect, that looks like a big oof.
[0] https://www.aprio.com/its-official-software-development-incl...
You are sadly mistaken.
There are two different concepts at work here:
1. R&D credits (IRC 41 https://www.law.cornell.edu/uscode/text/26/41). Companies can choose whether or not to pursue R&D credits. This is what Gusto was spamming you about.
2. R&E expenses (IRC 174 https://www.law.cornell.edu/uscode/text/26/174) which as of 2022 can no longer be fully deducted, but must be amortized over 5 or 15 years. IRC 174 (c)(3) explicitly states "any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure." This applies whether or not the company was treating software development as R&D under IRC 41.
For more details, see https://www.striketax.com/journal/tcja-and-the-resulting-tax...
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