The costs of research and experimentation are generally capital
expenses. However, you can choose to deduct these costs as a current
business expense.
Research and experimental costs table
For information on amortizing these costs, see Research and
Experimental Costs in chapter 9.
Research and experimental costs defined.
Research and experimental costs are reasonable costs you incur in
your trade or business for activities intended to provide information
to help eliminate uncertainty about the development or improvement of
a product. Uncertainty exists if the information available to you does
not establish how to develop or improve a product or the appropriate
design of a product. Whether costs qualify as research and
experimental costs depends on the nature of the activity to which the
costs relate. Neither the nature of the product or improvement being
developed nor the level of technological advancement matters when
making this determination.
The costs of obtaining a patent, including attorneys' fees in
making and perfecting a patent application, are research and
experimental costs.
Product.
The term "product" includes any of the following.
- Formula.
- Invention.
- Patent.
- Pilot model.
- Process.
- Technique.
- Similar property.
It also includes products used by you in your trade or business
or held for sale, lease, or license.
Costs not included.
Research and experimental costs do not include expenses for any of
the following.
- Advertising or promotions.
- Consumer surveys.
- Efficiency surveys.
- Management studies.
- Quality control testing.
- Research in connection with literary, historical, or similar
projects.
- The acquisition of another's patent, model, production, or
process.
When and how to choose.
Generally, you can make the choice to deduct these costs only in
the first year you incur research and experimental costs.
You choose to deduct research and experimental costs, rather than
capitalize them, by deducting them on your tax return for the year in
which you first have research and experimental costs.
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