A Brief Overview of R&D Tax Credits and Section 174 R&E Expenses

Understanding tax provisions, such as the amortization of Section 174 Research & Experimental (R&E) expenses, is crucial for businesses.

In 2017, the Tax Cuts and Jobs Act (TCJA) introduced a provision requiring taxpayers to amortize their R&E expenses over a 5-year period, starting in 2022. This was primarily to balance the Congressional Budget Office (CBO) score.

While there’s an overlap with Section 41 R&D Tax Credits, it’s important to note that Section 174 R&E is a separate Code section. The R&D Tax Credit, enacted in 1981, provides tax incentives for U.S.companies conducting R&D, offering a dollar-for-dollar reduction in federal tax liability for qualified expenditures. Conversely, Section 174 allows taxpayers to deduct research and experimental expenditures as current business expenses.

The TCJA changes have significant implications for taxpayers. Businesses need to understand these changes and plan their R&D investments accordingly. Consulting with a tax professional is always recommended to understand how these changes might impact your specific situation.