January 25, 2023
The Tax Cuts and Jobs Act (TCJA) was signed into law on December 2017, which amended the rules around the deductibility of research & development expenses, whether or not you may have claimed the related R&D credit. This mandatory delay in deduction for these expenses had an effective date that was deferred until 2022 - which is now here!
As such, any business that has expenses related to developing new processes, products, software, and technology, including internal costs such as wages, may have to deduct such costs over 5 years (U.S. costs) or 15 years (foreign costs) on their 2022 tax return.
Besides making this change to increase taxable income on the 2022 tax return, all businesses with this issue will also need to disclose this change on their tax returns in accordance with relevant guidance, including the simplified procedures under Revenue Procedure 2023-8 in lieu of filing Form 3115.
Be aware of this new issue for your 2022 tax returns! If you may have activities that may potentially be considered “Research & Development” costs, whether or not you’ve claimed the related R&D tax credit, you must consider this taxable income adjustment for 2022.