Tax Alert
Section 174 Amortization Begins in 2022: The R&E Deduction You Can No Longer Take in Full
Beginning in 2022, businesses can no longer assume domestic research and experimental costs will be fully deductible in the current year. The Section 174 capitalization requirement changes cash tax planning in a very real way.
Why the change is disruptive
Many businesses budgeted around current deductions for software development, product development, and related technical work. Required amortization means taxable income can rise even when economics have not improved.
Who feels it most
- technology businesses
- manufacturers with significant product development spend
- life sciences companies
- firms with internal software development costs
Planning implications
- update quarterly tax estimates
- revisit forecasts and lender communications
- improve cost identification between deductible and capitalizable items
- coordinate with finance before year-end closes
Bottom line
Section 174 is no longer a background technical issue. For many growth-oriented businesses, it is a cash-flow and forecasting issue that needs active management.
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