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Tax Treatment for Non Recurring Engineering Costs

Technical topics regarding tax preparation.
#1
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Milwaukee, WI
So I have a client who is paying a manufacturer to develop a commercially viable product to sell online. Costs incurred in relation to the initial development and design of the product he is charging to an account called "Non Recurring Engineering" NRE which are one time costs to initially develop and design the product. The question is should this be capitalized and amortized or should it be expensed for tax purposes?

I have advised my client that this probably should be classified as a Section 174 Research and Development Cost and as such can either be 1) expensed as incurred or 2) be capitalized and amortized over five years.

Is what I said a rational treatment of NRE or am I off base here?
 

#2
Coddington  
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If they're really section 174 expenses, there isn't a problem. It wouldn't be an unusual situation. Just note that amortization doesn't kick in until the taxpayer realizes benefits from the expenditures.
-Brian
Tax accounting methods and credits consultant for hire.

http://www.coddingtontax.com
 


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