Tax specialists navigating intricate R&D cost regulations: must understand guidelines.

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Key Elements of the Article


  • Tax professionals need to consider software development, contractual research, and other transactions when calculating R&D expenses for tax credits.
  • Businesses face compliance challenges despite IRS guidance and legislation related to specified research or experimental expenditures under Section 174.

Tax professionals need to be aware of critical issues regarding capitalization and amortization requirements, including software development, research under contract, intragroup transactions, allocation methods, and dispositions from transactions. Software development costs incurred for upgrades and enhancements to modify existing software may constitute SRE activities, while maintenance costs do not, leading to confusion over definitions. Businesses must also navigate uncertainties in research under contract, understand intragroup transactions, determine appropriate allocation methods for SRE expenditures, and handle dispositions from transactions carefully. The complexities highlight the importance of a proactive approach and consulting with tax specialists to ensure compliance and strategic alignment.

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