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.
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.
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?
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.
Third to last paragraph: if I sell software, a third party bug bounty type guy finds an exploit, notifies me, I patch the vuln, and release the patch as a hot fix: you figure all of that is SRE, probably?
(Disclaimer: not seeking tax advice or legal advice, we’re just two dudes casually discussing section 174 like normal people do all the time).
That notice was a helpful read. I think what I may have been missing was section 5 of Rev. Proc. 2000-50, whereunder non-SRE software dev was also afforded some similar protection. I’ll read that after work but I’d still love you to answer the foregoing.
I re-read the section of the notice that scenario would apply to, and I actually think its pretty clear that is not SRE. Correcting defects discovered after the software is put into production, or discovered in released version of software, and not considered SRE. See section 5.03(5)(b) of the notice. Pre-release bug fixes are still SRE though.
Definitely ask your CPA though. I'm not an accountant.
