USA Taxation – R&D. Don’t miss out!

Expenses related to R&D (research and development), including the cost of developing software, cannot be expensed, but must instead be capitalized and amortized over 5 years – 15 years if the work is performed outside the USA.

For example, a company generates an income of $1,000,000 per year. The company employs five engineers, each paid $200,000. This amounts to $1,000,000 paid in labor expenses. For simplicity, let’s omit other expenses. What would the taxable profit be?

In 2021, the answer would be zero profit and zero corporate tax.

In 2022:

$1,000,000 – ($1,000,000*0.1) = $900,000 profit
21% tax = $189,000