Many people dislike how the Tax Cuts and Jobs Act amended Code Sec. 174, particularly manufacturers. Before Jan. 1, 2022, businesses could amortize or expense research and experimentation costs in the year they were incurred. Typically, they expensed them immediately to optimize their deduction. Now, they must either capitalize or amortize these costs for periods of five years for U.S.-based research (15 years for foreign-based). There’s bipartisan support in Congress to fix Sec. 174 and restore full expensing of research costs. It may be included in the proposed Innovation and Competition Act or a year-end extenders package. In the meantime, companies must comply with the current law.
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