Page 84 - Small Business Taxes

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Fileid: … tions/p535/2022/a/xml/cycle01/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
information, see Recovery of amount deducted • Retired asset removal costs 31, 2021, must be charged to a separate speci-
(tax benefit rule) in chapter 1 under How Much • Barrier removal costs fied research or experimental capital account
Can I Deduct. • Film and television production costs and amortized ratably over a 5-year period or a
• Repair and maintenance costs 15-year period for foreign research. The expen-
ses cannot be deducted in full in the current
Useful Items year.
You may want to see: For information on amortizing these costs,
see Research and Experimental Costs in chap-
7. Publication ter 8.
544 544 Sales and Other Dispositions of Research and experimental costs defined.
Assets Research or experimental expenditures, as
Costs You Can Form (and Instructions) used in section 174, are research and develop-
ment costs, including costs incident to research
Schedule C (Form 1040) Schedule C (Form 1040) Profit or Loss in the experimental or laboratory sense, you in-
Deduct or From Business cur in connection with your trade or business for
3468 3468 Investment Credit activities intended to provide information that
Capitalize 6765 6765 Credit for Increasing Research would eliminate uncertainty about the develop-
ment or improvement of a product. Uncertainty
Activities exists if the information available to you does
8826 8826 Disabled Access Credit not establish how to develop or improve a prod-
What’s New T (Timber) T (Timber) Forest Activities Schedule uct or the appropriate design of a product.
Whether costs qualify as research and experi-
See chapter 12 for information about getting mental expenditures depends on the nature of
Research and experimental costs. Begin- publications and forms. the activity to which the costs relate rather than
ning January 1, 2022, research and experimen- on the nature of the product or improvement be-
tal expenditures, generally, have to be amor- Carrying Charges ing developed or the level of technological ad-
tized over a 5-year period. A business cannot vancement.
elect to deduct their total research expenses in The costs of obtaining a patent, including at-
the current year. See Research and Experimen- Carrying charges include the taxes and interest torneys' fees paid or incurred in making and
tal Costs in chapter 7 and chapter 8. you pay to carry or develop real property or to perfecting a patent application, are research
carry, transport, or install personal property. and experimental expenditures. However, costs
Introduction Certain carrying charges must be capitalized paid or incurred to obtain another's patent are
under the uniform capitalization rules. (For infor-
not research and experimental expenditures.
This chapter discusses costs you can elect to mation on capitalization of interest, see chap- The costs related to developing software are
ter 4.) You can elect to capitalize carrying
deduct or capitalize. charges not subject to the uniform capitalization treated as research and experimental expendi-
You generally deduct a cost as a current rules, but only if they are otherwise deductible. tures.
business expense by subtracting it from your in-
Product. The term “product” includes any
come in either the year you incur it or the year You can elect to capitalize carrying charges of the following items.
you pay it. separately for each project you have and for
If you capitalize a cost, you may be able to each type of carrying charge. Your election is • Formula.
recover it over a period of years through peri- good for only 1 year for unimproved and unpro- • Invention.
odic deductions for amortization, depletion, or ductive real property. You must decide whether • Patent.
depreciation. When you capitalize a cost, you to capitalize carrying charges each year the • Pilot model.
add it to the basis of property to which it relates. property remains unimproved and unproduc- • Process.
A partnership, corporation, estate, or trust tive. For other real property, your election to • Technique.
makes the election to deduct or capitalize the capitalize carrying charges remains in effect un- • Property similar to the items listed above.
costs discussed in this chapter except for ex- til construction or development is completed. It also includes products used by you in your
ploration costs for mineral deposits. Each indi- For personal property, your election is effective trade or business or held for sale, lease, or li-
vidual partner, shareholder, or beneficiary until the date you install or first use it, whichever cense.
elects whether to deduct or capitalize explora- is later.
Costs not included. Research and experi-
tion costs. How to make the election. To make the elec- mental expenditures do not include expenses
Individuals, estates, and trusts may be tion to capitalize a carrying charge, attach a for any of the following activities.
! subject to AMT if they deduct certain statement to your original tax return for the year • Advertising or promotions.
CAUTION research and experimental, intangible the election is to be effective indicating which • Consumer surveys.
drilling, exploration, development, circulation, or charges you are electing to capitalize. However, • Efficiency surveys.
business organizational costs. if you timely filed your return for the year without • Land, including acquisition and improve-
For more information on the AMT, see the making the election, you can still make the elec- ment costs for land.
Instructions for Form 6251 and the Instructions tion by filing an amended return within 6 months • Acquisition and improvement costs of de-
for Schedule I (Form 1041). of the due date of the return (excluding exten- preciable property.
sions). Attach the statement to the amended re- • Exploration costs for the purpose of ascer-
Topics turn and write “Filed pursuant to section taining the existence, location, extent, or
quality of any deposit of ore or other min-
301.9100-2” on the statement. File the amen-
This chapter discusses: ded return at the same address you filed the eral.
original return. • Management studies.
• Carrying charges • Quality control testing.
• Research and experimental costs • Research in connection with literary, his-
• Intangible drilling costs Research and torical, or similar projects.
• Exploration costs Experimental Costs • The acquisition of another's patent, model,
• Development costs production, or process.
• Circulation costs
• Business startup and organizational costs Research or experimental expenditures paid or Research credit. If you pay or incur costs that
• Reforestation costs incurred in tax years beginning after December may be treated as research or experimental
Chapter 7 Costs You Can Deduct or Capitalize Page 25