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The Tax Cuts and Jobs Act (“TCJA”) of 2017 amended Section 174 to require taxpayers to capitalize and amortize specified research and experimental (“R&E”) expenditures over a period of five years for domestic expenses and 15 years for foreign expenses.

Section 174 of the Internal Revenue Code historically allowed taxpayers to choose whether to deduct research and experimental expenditures as current expenses or capitalize and amortize them over time.

An IRC Section 174 expense is one that's directly connected to the taxpayer's trade or business and represents an R&D cost in the experimental or laboratory sense. Examples include: Wages paid to employees who were directly involved in R&D activities and the individuals who directly supervised or supported their work.

An IRC Section 174 expense is one that's directly connected to the taxpayer's trade or business and represents an R&D cost in the experimental or laboratory sense. Examples include: Wages paid to employees who were directly involved in R&D activities and the individuals who directly supervised or supported their work.

Section 174 describes the tax treatment for costs of developing or improving a product or process used in a taxpayer's trade or business, otherwise known as research and experimental (R&E) costs.

Under the new capitalization rules for Internal Revenue Code Section 174, businesses can no longer deduct all R&E expenses during the year incurred beginning December 31, 2021, requiring companies to instead amortize and capitalize their annual R&E spend going forward.

Indirect Costs: Section 41 costs are limited to salaries and wages, supplies, and contract research. Section 174 costs include a much broader base of expenses, including software development costs and those costs that are “incident to the development or improvement of a product or process.” (Treas.