4 ms·

It’s not five years. It’s whatever the useful lifespan of the software. Web dev we usually did 2 years since that was the average lifespan of a web page. Fo

by adrr 3y ago

It’s not five years. It’s whatever the useful lifespan of the software. Web dev we usually did 2 years since that was the average lifespan of a web page. For public companies, they are incentivized to amortize over longer period because it hides expenses and can boost earnings that boosts stock price.

moron4hire 3y ago
> 26 US Code Section 174, paragraph D - Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures.
- adrr 3y ago
  I don’t get. It doesn’t say five years.
- rgbrenner 3y ago
  This means something different than adrr is asking about. The IRS has depreciation schedules for different asset classes. For example, trucks are 5 years; real estate is 39 years; but you can under some circumstances use an Alternative Depreciation Schedule (ADS).. the depreciation schedule should match the usable lifetime of the asset. But if the typical lifetime is 5 years, but you use an ADS of 2 years... you are not disposing or abandoning the asset if you keep it for 2 years. 2 years is the expected life time of the asset, and at the end of year 2, the asset has a value of $0. If you depreciate over 5 years, but then on year 2 decide you don't need the asset anymore, then you'll dispose of it. The asset is valued at 3/5ths of the original price. The paragraph you're quoting applies to this scenario. ADS doesn't apply here though, because TCJA requires 5 years for domestic and 15 years for foreign research.
rgbrenner 3y ago
TCJA actually says 5 years for domestic research and 15 for foreign.
- adrr 3y ago
  Talking about software development which can be classified r&d for tax credits but it can also be capitalized like any other assets. This pdf has handy chart to determine how to determine software development should be treat for accounting purposes. Grant Thornton is the external auditor for many large companies. ttps://www.grantthornton.com/content/dam/grantthornton/website/assets/content-page-files/audit/pdfs/2020/accounting-software-costs/accounting-software-costs.pdf
  - rgbrenner 3y ago
    No. TCJA requires all software development costs to be treated as r&d, and capitalized over 5 years (or 15 years). Guidance from pre-2022 no longer applies. https://www.grantthornton.com/insights/alerts/tax/2023/flash/irs-guidance-clarifies-amortization-under-section https://www.grantthornton.com/insights/alerts/tax/2023/flash...
    - singleshot_ 3y ago
      My reading of this document is that certain software development activity (e.g., “corrective maintenance to debug, diagnose, and fix programming errors”) is not SRE. This seems to contradict your statement that “all software development costs [are] to be treated as r&d,” but my experience is that you know what you’re talking about. What am I missing here?
      - rgbrenner 3y ago
        I would suggest reading notice 2023-63. That provision is very limited, and may not be available to you at all depending on the software you're developing, and/or the stage of the development that those steps occur in. For example, for a new feature: if you plan (SRE), design the interface (SRE), write the feature (SRE), run it through QA (SRE), and then discover a bug and correct it -- that's still SRE. If you put the software into prod, then discover a bug, then fix it (without improving performance or adding any functionality), then it might not be SRE. But if you sell software, and you sell or install a release to a customer, and they (or you, under a support contract) discover a bug and fix it... but then you include the fix in your next release, probably SRE. Or, if you put the software into prod, discover it breaks with a large data set, and you fix it by improving the performance of that section of code, probably SRE. The expenses falling under that provision aren't going to make a significant change to the impact of TCJA on software development.

by adrr 3y ago

moron4hire 3y ago

> 26 US Code Section 174, paragraph D - Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures.

adrr 3y ago
I don’t get. It doesn’t say five years.
rgbrenner 3y ago
This means something different than adrr is asking about. The IRS has depreciation schedules for different asset classes. For example, trucks are 5 years; real estate is 39 years; but you can under some circumstances use an Alternative Depreciation Schedule (ADS).. the depreciation schedule should match the usable lifetime of the asset. But if the typical lifetime is 5 years, but you use an ADS of 2 years... you are not disposing or abandoning the asset if you keep it for 2 years. 2 years is the expected life time of the asset, and at the end of year 2, the asset has a value of $0. If you depreciate over 5 years, but then on year 2 decide you don't need the asset anymore, then you'll dispose of it. The asset is valued at 3/5ths of the original price. The paragraph you're quoting applies to this scenario. ADS doesn't apply here though, because TCJA requires 5 years for domestic and 15 years for foreign research.

rgbrenner 3y ago

TCJA actually says 5 years for domestic research and 15 for foreign.

adrr 3y ago
Talking about software development which can be classified r&d for tax credits but it can also be capitalized like any other assets. This pdf has handy chart to determine how to determine software development should be treat for accounting purposes. Grant Thornton is the external auditor for many large companies. ttps://www.grantthornton.com/content/dam/grantthornton/website/assets/content-page-files/audit/pdfs/2020/accounting-software-costs/accounting-software-costs.pdf
- rgbrenner 3y ago
  No. TCJA requires all software development costs to be treated as r&d, and capitalized over 5 years (or 15 years). Guidance from pre-2022 no longer applies. https://www.grantthornton.com/insights/alerts/tax/2023/flash/irs-guidance-clarifies-amortization-under-section https://www.grantthornton.com/insights/alerts/tax/2023/flash...
  - singleshot_ 3y ago
    My reading of this document is that certain software development activity (e.g., “corrective maintenance to debug, diagnose, and fix programming errors”) is not SRE. This seems to contradict your statement that “all software development costs [are] to be treated as r&d,” but my experience is that you know what you’re talking about. What am I missing here?
    - rgbrenner 3y ago
      I would suggest reading notice 2023-63. That provision is very limited, and may not be available to you at all depending on the software you're developing, and/or the stage of the development that those steps occur in. For example, for a new feature: if you plan (SRE), design the interface (SRE), write the feature (SRE), run it through QA (SRE), and then discover a bug and correct it -- that's still SRE. If you put the software into prod, then discover a bug, then fix it (without improving performance or adding any functionality), then it might not be SRE. But if you sell software, and you sell or install a release to a customer, and they (or you, under a support contract) discover a bug and fix it... but then you include the fix in your next release, probably SRE. Or, if you put the software into prod, discover it breaks with a large data set, and you fix it by improving the performance of that section of code, probably SRE. The expenses falling under that provision aren't going to make a significant change to the impact of TCJA on software development.