Article
TCJA and 2022 impact to research & experimental expense treatment
April 10, 2022 · Authored by Ray Esquivel, Travis Riley
Beginning in 2022, the Tax Cuts and Jobs Act’s (TCJA) newly effective amortization requirement of research and experimental (R&E) amortization stands to impact multiple aspects of tax and financial statement planning.
Signed into law on Dec. 22, 2017, the TCJA eliminated a long-standing rule allowing taxpayers to elect to either currently deduct or to capitalize and amortize R&E expenses. Effective for tax years beginning after Dec. 31, 2021, taxpayers must instead capitalize and amortize U.S.-based R&E expenses over five years and foreign R&E expenses over 15 years.
Significant uncertainty remains about how organizations should treat R&E expenses in light of the TCJA rules. However, absent any legislative action that delays or repeals the R&E amortization requirement, taxpayers must now consider the TCJA provisions, beginning in the short term with quarterly estimated tax payments and financial statement impact.
This article covers the following:
- Definitions of R&E expenses
- Previous treatment of R&E expenses
- Consequences of TCJA to R&E expenses
- TCJA tax impact to section 41 and section 280C
- Change in accounting method for R&E expenses
- Impact to financial statements and annual tax provisions
- Estimated tax payments
- Example of TCJA tax impact to industries
- Legislative outlook
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
