| Not a practitioner, just a startup cofounder affected by these changes.. not legal or tax advice. You can read the applicable text here: https://www.law.cornell.edu/uscode/text/26/174 Section 174(c)(3) ```
(3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. ``` That being said... it's complicated: https://www.thomsonreuters.com/en-us/posts/tax-and-accountin... We've heard a mix of advice from various tax professionals on what should be classified as R&D or not. The messaging gets expecially mixed since the R&D tax credit is often handled by a 3rd party that specializes in it. The company specializing in the tax credit may be incentivized to classify as much of your activity as R&D as they can, since they are usually paid a percentage of the total credits they are able to claim for your company. It certainly complicates running a software company. My cofounder and I need to look at the amortization schedule before making any engineering hire as we basically need to consider their salary nearly 100% R&D. I imagine it's even more complicated for founders with overseas teams. It would certainly be easier for us to do business if Section 174 was revised :) |
As to software “development,” when you finish your software and publish it and get customer installs, then what happens? More software development? Or is ongoing operation/bug fixes still R&D under (c)(3)? I think your average software person has a strong belief about the answer to this question but having read some of the code® in the area, I share your opinion that this section needs more detail.