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Section 174 – Hosted by FirstXFounder
February 25 @ 5:30 pm - 7:00 pm
Mike Orlando, Managing Director, NY Metro Accounting Method and Credit Services Tax Group, KPMG
Early stage biosciences venture can incur heavy R&D expenses. Reserving grant proceeds to pay income tax liabilities reduces available R&D funding. This webinar revisits Section 174 in light of pause to biosciences grant payments and proposed changes to state R&D tax credits. After an overview of Section 174 and related tax credits, case studies are presented for grant funded ventures including ventures with software R&D and exits. The webinar shares founder and investor considerations for the remainder of 2025 and preparation considerations for 2026.
Background
Under Sec. 174, taxpayers were allowed the option to currently deduct R&E expenditures or treat R&D expenditures as deferred expenses to be capitalized and amortized. The Tax Cuts and Jobs Act of 2017 (TCJA), P.L. 115-97, eliminated the option to take a current deduction. Beginning in 2022, taxpayers are required to capitalize R&E expenditures over a five-year period for domestic expenses and 15 years for foreign expenses. This change also affects the application of Sec. 280C(c), relating to the interaction between a taxpayer’s R&E deduction and the research and development (R&D) tax credit.
Subsequently, several states enacted legislation to decouple from current Sec. 174 and allow R&E expenditures to be deducted in the year in which they are incurred including California and New Jersey.
This webinar will revisit Section 174 and provide analysis on how to assess the impact of proposed changes for primarily early stage grant funded ventures including ventures with software development and ventures which license (dispose) of technology. A short analysis of impact of changing tax credit will be shared.