New Research and Development Cost Capitalization Rules

What Is the New Capitalization Rule?

New federal tax rules require businesses to capitalize and amortize certain research and development (R&D) costs. Historically, the rules permitted the immediate write-off of R&D expenses. Now, companies which are generating revenue could be required to pay tax because they are no longer able to use R&D costs incurred during the year to generate losses. This is because a large portion of the tax deduction associated with the costs is delayed under the new rule.

Example

Suppose in 2021 Company A generates $500,000 of revenue and incurs $1,000,000 of deductible R&D expenses (i.e., salaries, certain indirect expenses,

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