Question

R&D expenses under section 174 Software Development

Forum|Forum|2 years ago
February 2, 2024
2 replies
5 views

With the new 174 Depreciation requirements for R and D, How should we categorize Software Development.

In Quickbooks, Should I create a new Software Development Fixed Asset and Depreciate this asset over 5 years?

Technically it is an expense, but you cant depreciate an expense, unless I manually break out each year and put is in the next 5 years. Example, in 2023 I spent $5000.00 on development. I could put an expense of $1000.00 for 2023,24,25,26,and 27. But this would be hard to explain in an audit.

I'm thinking create the Fixed Asset account and call it 2023 R and D, and do the same each year going forward. At least this could be easily discerned from the account names.

Any ideas? How are you going to depreciate your R&D?

QuickBooks Desktop

Morgan_B

QuickBooks Team

Thanks for joining us in the Community, JoeZ_66.

I'm here to help point you in the right direction regarding these accounts in QuickBooks Desktop.

In this scenario I recommend speaking with your accountant about which option would be the best. An accountant will be able to provide accurate advice after viewing your unique business setup and workflows.

If you don't currently have an accountant, you can find one in your area specifically trained in QuickBooks by searching here: Find a ProAdvisor

Please feel free to stick around to see what other QuickBooks users have done in similar situations. Additionally, don't hesitate to reach back out in the comments if you need any assistance with the entry. Take care!

J

joezyzAuthor

Hi Morgan,

Thanks for your reply.

I considered this more of a how do I list R&D in quickbooks rather than a tax or accounting question. Under the new 174 guidelines R&D should be depreciated for 5 years for domestic companies.

How in QB, do you depreciate an expense? The only way I can see to do this is to create a fixed asset account and put all R&D into that account.

Do you know any way in QB to depreciate expenses over a 5 year term? How are other people doing this....

Rainflurry

Level 11

@joezyz

Create three accounts:

1) Create an other asset account called 'R&D Costs' or 'Sec. 174 Costs'.

2) Create an expense account called 'Amortization Expense'. R&D costs are amortized, not depreciated.

3) Create an other asset account called 'Accumulated Amortization'

Assign all of your R&D costs to the R&D Costs other asset account when incurred. To expense the costs over the 5-year period, create a journal entries: debit Amortization Expense, credit Accumulated Amortization. So, in your example, create a journal entry that debits Amortization Expense and credits Accumulated Amortization for $1,000. That will expense the costs and reduce the carrying amount (net book value) of the R&D Costs asset account to $4,000 by creating a -$1,000 entry to Accumulated Amortization.

J

joezyzAuthor

Thanks for the reply. You are correct. I mistakenly said depreciate when the are amortized.

But thank you, that is what I was thinking, and you confirmed it.

I appreciate your response.

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