Another Tax Break for Research Expenses

The research credit isn’t the only tax break available for research activities. Section 174 of the tax code allows taxpayers to elect to either: 1) deduct “research or experimental expenditures” or 2) amortize the costs over a period of not less than 60 months. Qualified expenses are limited to the following:

• In-house wages and supplies attributable to qualified research,
• Certain time-sharing costs for computer use in qualified research, and
• 65% of contract research expenses, that is, amounts paid to outside contractors in the U.S. for conducting qualified research on the taxpayer’s behalf.

Important note. The Sec. 174 deduction must be reduced if you claim the research credit for the same expenses. Consult with your tax adviser to determine the best approach for your situation. Contact a Yeo & Yeo Tax Advisor for assistance.

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