Turbotax Business 2022 - missing required election statement for mandatory Section 174 amortization

Forum|Forum|3 years ago
February 28, 2023
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When will Turbotax Business (S corporations 1120S) be updated to include the required election statement for the mandatory adoption of Section 174 amortization for 2022? This is a required form pursuant to Rev. Proc. 2023-08. Any business that has research and development expenses (R&D) must now amortize them. This is a major change impacting all businesses that incur research expenses regardless of whether the business is claiming a R&D tax credit. If Turbotax does not supply this election statement businesses will not be able to electronically file their business tax return and will then have to file the more complicated Form 3115 - Application for Change in Accounting Method.

Here's an excellent article on the new requirement under Section 174:

https://www.forvis.com/alert-article/2022/12/irs-allows-automatic-method-change-capitalizing-rd-expenses

TurboTax Business Windows

AliciaP1

The superseding Rev. Proc. 2023-11 was issued and is noted at the bottom of the helpful article you posted. This states research and experimental expenditures are charged to capital accounts (not long-term assets) and then provide an amortized deduction over 5 years (or 15 in some cases). This becomes a basis calculation and is not included in your tax return. Also, if the research and experimental expenditures were incurred before 12/31/21, Form 3115 is required to be filed.

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mtzttaxAuthor

Rev Proc 2023-11 gives only procedural guidance on implementing the required change to the treatment of Section 174 costs. It did NOT change the fact that those costs must now be amortized over 5 year (15 years for foreign research). Prior to 2022 research costs could be deducted but that is no longer true. They must now be amortized which, for companies who have expensed them on their books, will require them to add them back to taxable income as a Schedule M-1 adjustment, potentially a huge adjustment with significant cashflow impact.

Also, the deferred (non-deductible) amortized costs may not be required to be disclosed on the tax return but they are obviously of great importance in future years as they become tax deductible over that 5 year period.

mtzttaxAuthor

I forgot to add that you didn't mention when Turbotax Business will provide the election statement form in lieu of the requirement to file a Form 3115. I'm hoping that for electronic filing purposes Turbotax makes this election form transmissible to the IRS and not as a mere memo attachment form that will require taxpayers to mail a paper tax return.