Suspension Of Section 174 Capitalization For Domestic Research
The House Ways and Means Committee has introduced proposed tax legislation that would suspend capitalization under Section 174 for domestic research and experimental expenditures. This suspension would apply to taxable years beginning after Dec. 31, 2024, and before Jan. 1, 2030.
Current Law On R&D Expenditure Capitalization
Under existing law, both domestic and foreign research and experimental expenditures for taxable years after Dec. 31, 2021, must be capitalized. Domestic expenditures are amortized over five years, while foreign expenditures are amortized over 15 years. The proposed legislation would pause the capitalization requirement for domestic research expenditures during the specified period, while foreign expenditures would still require capitalization and amortization over 15 years.
Benefits For Innovative Businesses
Immediate Deductions For Domestic R&D Costs
If enacted, this legislation would provide significant relief for businesses with domestic research expenses. Companies would be able to fully deduct their domestic research expenses in the year incurred, rather than capitalizing and amortizing them.
Additional Deductions For Prior Amortization
Additionally, businesses could deduct any amortization expenses from R&D costs capitalized during the 2022-2024 tax years. Combined with applicable R&D tax credits, these deductions could lead to substantial tax savings starting in 2025.
Consult A Tax Advisor For Guidance
To understand how your company could benefit from this proposed R&D tax legislation if it becomes law, contact a GBQ Tax advisor for personalized advice.
By Leah Rogers, CPA, Tax and Business Advisory Services
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