Changes to the R&D tax and accounting that take effect on January 1, 2022.
From January 1, 2022 companies are required to capitalize and amortize their research and experimentation expenditures over a period of time. The period of amortization depends on whether the research and experimentation work is performed in the United States of America or abroad.
The immediate expensing allows businesses to reduce their taxes. With these new changes, you should reconsider your tax planning from both a cash tax and effective tax rate perspective.
Until December 31, 2021, businesses were allowed to immediately expense research and experimentation expenses including software development costs in the year when they were incurred. The new law will impact all industries especially research-oriented industries such as life science, technology companies.
Case study:
You’re a technology company that is just starting out in the discovery stage of research. You spent a lot of money on research and experimentation. You must capitalize your R&D expenses and amortize them.
As a result, you may project a taxable profit due to reduced R&D expenses. If that’s the case, you must calculate corporation estimated income tax and start paying quarterly estimated tax.Your foreign tax credit computation and effective tax rate may also be affected.
The team at Aimlon CPA P.C. can assist technology companies in evaluating the tax and accounting implications of the new law.