Guidance on Amortization of Research or Exp. Expenditures Under Section 174 [pdf]

My general understanding is that 174 classifies more activities like capital assets. If you build a factory, you have to write off that expenditure over time, including the money you pay people to build it. Later, if you repair a toilet, that can be expensed immediately, but if you upgrade the electric system, then that is an improvement and must also be amortized.

Research activity in other, more capital intesive industries has largely been this way for a while. What 174 does is brings software development under that umbrella. This means that most of what we do as devs classifies as building assets, so our salaries must be amortized over 5 years. Previously, companies had a choice whether to do this in 1 or 5 years. Really 174 removes this choice, if I'm recalling all the things my accountant explained to me.

This rule change came as part of the Trump Tax Cuts, as a give to get the full bill passed. If you look at it one way, the idea is to get taxes out of big tech and offshore development. Problem is, big tech can weather the changes while many smaller companies are finding it difficult.

Everyone assumed it would be changed by the time it came into effect, but here we are, with a dysfunctional congress becoming more selfish and partisan. Like the middle class, the middle ground has been disappearing... it's super frustrating as a citizen.