Lessons Learned for Technology Companies With Section 174

On the surface, it may seem like a simple accounting method change, but Section 174: Amortization of Research & Experimental Expenditures has complex implications and rules, particularly for technology companies, as it relates to research and software development costs.

Section 174 impacts technology companies much more than other industries. In the latest episode of our Technology podcast, Tim Larson, Tax Partner, welcomes members from Cherry Bekaert’s Tax Credits & Incentives Advisory practice, Martin Karamon, Daniel Mennel and Carolyn Smith Driscoll, to discuss new mandatory requirements for taxpayers under Section 174 and what it means for technology companies.

In this podcast, we’ll cover: 

• Differences Between Section 174 and the R&D Tax Credit 
• Expenditures vs. Expenses 
• Risk Rights 
• Software Development vs. Services 
• Companies in Losses 

Future developments to this tax code are anticipated this year. Subscribe to Cherry Bekaert’s technology podcast and other guidance offerings so you don’t miss a thing.

Other Relevant Guidance:

• Section 174 Research & Software Development Costs – A Guide to Compliance
• R&D Update: What’s Going On With Section 174?
• R&D Tax Credits: 2022 Year in Review
• Planning for Capitalization of Research and Experimentation (R&E) Costs

Chapters

• 1:28 Background and overview of the rules surrounding Section 174
• 3:34 Differences between the R&D credit and Section 174
• 7:06 Companies in losses
• 8:47 Methodologies to consider for allocation of overhead
• 10:22 Software Development vs. Services