Tax Treatment for Non Recurring Engineering Costs

Technical topics regarding tax preparation.
#1
Posts:
70
Joined:
2-Sep-2020 12:38pm
Location:
Southeastern Wisconsin
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  
Moderator
Posts:
2567
Joined:
21-Apr-2014 8:50pm
Location:
Fort Worth, TX
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

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 


Return to Taxation



Who is online

Users browsing this forum: CoastalCPA, deniz, golfinz, Google [Bot], Google Adsense [Bot], JAD, ManVsTax, MAPCPA60, mariaku, rkrcpa, SlipperyPencil, zl28 and 161 guests