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Section 174: Take action on R&D expenditures

Guidance for mandatory capitalization of research and experimental expenditures

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An unfavorable change in the law governing the tax treatment of research and development expenses is increasing many businesses’ 2022 tax bill and forcing them to assess their overall R&D strategy.

This change to section 174, written into the Tax Cuts and Jobs Act of 2017, requires organizations to capitalize and amortize R&D expenses over five years instead of being able to deduct costs immediately. (The period is 15 years for expenses incurred for R&D activities outside the United States.)

The new tax treatment is law, despite widespread hope that Congress would address it before it affected businesses, and the IRS has made clear it expects taxpayers to have a mechanism to comply for the 2022 tax year and beyond. Businesses must undertake necessary documentation and estimation efforts while planning for the effects on cash flow.

RSM helps businesses understand how the changed law affects you. The following insights bring the issues into focus.

Related solutions

Research and development (R&D) tax credit services
State tax credits and incentives services
Capitol building and documents
Washington National Tax

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RSM updates on R&D expenditures

RSM’s comment letters to U.S. Congressional leaders