Tax
Section 174 (R&D Capitalization)
Quick definition
Tax change effective 2022 requiring R&D expenses to be capitalized and amortized over 5 years (US) or 15 years (foreign) instead of expensed immediately.
The 2017 Tax Cuts and Jobs Act phased out immediate expensing of R&D under §174, starting in tax year 2022. Now: domestic R&D must be capitalized and amortized over 5 years (60 months); foreign R&D over 15 years. This dramatically increases reported taxable income for software startups (whose engineer salaries are R&D). Combine with the §41 R&D credit for offset. Congress has repeatedly tried to restore immediate expensing — watch for legislation.
Related tax terms
R&D Tax Credit
Federal credit for qualified research expenses, usable against payroll tax by startups.
Delaware Franchise Tax
Annual tax for Delaware corporations, often quoted wildly too high if calculated incorrectly.
Nexus (Sales Tax)
The connection with a state that triggers a tax-collection obligation.
QSBS (Qualified Small Business Stock)
Tax exemption for gains on qualifying startup stock held 5+ years.
See this in action
Insights and tools where Section 174 (R&D Capitalization) shows up.
Frequently asked questions
- What is Section 174 (R&D Capitalization)?
- The 2017 Tax Cuts and Jobs Act phased out immediate expensing of R&D under §174, starting in tax year 2022. Now: domestic R&D must be capitalized and amortized over 5 years (60 months); foreign R&D over 15 years. This dramatically increases reported taxable income for software startups (whose engineer salaries are R&D). Combine with the §41 R&D credit for offset. Congress has repeatedly tried to restore immediate expensing — watch for legislation.
- Why is Section 174 (R&D Capitalization) important for startups?
- Section 174 (R&D Capitalization) is a tax concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does Section 174 (R&D Capitalization) belong to?
- Section 174 (R&D Capitalization) is a Tax term in the StartupCFO finance glossary — alongside other tax concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about Section 174 (R&D Capitalization)?
- Beyond this definition, see the related tax terms below, or explore StartupCFO's insights and tools that put Section 174 (R&D Capitalization) in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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