That doesn't make sense since there is both greenfield development and maintenance development. By this logic we would have to track our hours and write down when we do maintenance work and when we do R&D.
You do, if you want to claim the tax credit. But the R&D tax credit and R&E under Section 174 are two completely different things.
Until 2022, companies had the choice between expensing and amortizing software development under Section 174. (Section 174 specifically calls out all software development as falling under that section.) So they would only time track when they wanted to get the R&D tax credit, which only covers a portion of software development activities. R&D tax credit software development is a much narrower scope than R&E software development. So it didn't matter until now.
“In the case of a taxpayer’s specified research or experimental expenditures for any taxable year” …
Seems pretty obvious to me that the section only applies to what is claimed as R&E. Software development doesn’t have to be claimed as R&E, but if it is, now it unambiguously qualifies.
You don't specify what is R&E, the statute does. It's specified in the next section, and section c(3):
" “specified research or experimental expenditures” means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business."
and
"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."
Isn't the main problem that this change forces all software development, regardless of purpose, to be classified as R&E and therefore forced to be amortized?
No! That’s what confused CPAs are telling gullible startup founders.
Nothing forces you to classify engineering salaries or even contract expenses under the provisions of section 174 which describe “research and experimental expenditure”. There are some reasons historically why people elected to do that, but that may be a bad idea moving forward and honestly seems rather dishonest to me. No, your Jira clone is not “research and experimental expenditure”, it’s just a fucking database with a UI… just like 97% of all other startups. It’s more like: if you can use section 174 because you spun up a project to research curing diabetes with nano bots, then your software development allocated towards the project also counts as R&E, cheers.
Repeat after me: “my core business is not a research and experimental expenditure, it’s just a normal mundane boring operating expense”.
Honestly people like you posting these articles claiming that “weird legislative inaction is fucking over startups and small business” and further pushing the “all work that involves scripting a computer 110% must be classified as software R&E” narrative in comments, in spite of so many people telling you that such a conclusion is batshit stupid, makes me question whether there’s some ulterior motive in play. Like what, are all the accounting firms realizing their CPAs don’t outperform TurboTax if they can’t use their secret software R&E magic loophole and have thus deployed the shills, who show founders ridiculous mega tax bills..obviously perturbing them into posting their re-shills? Anecdotally, I know exactly zero founders who are getting “fucked over” by this because they aren’t stupid enough to structure their taxes in a way that causes their employees’ salaries to magically become capitalized voodoo money. Like, man, cut the histrionics… and find a better tax person.
Whether you can shop around to find someone who can tell you what you want to hear is unrelated to the mixed fact and law question of whether it is a defensible position that software development salaries must be capitalized.
